buy low sell high

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pages: 394 words: 85,252

The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit From Price Declines by Alexander Elder

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Atul Gawande, backtesting, buy low sell high, Checklist Manifesto, double helix, impulse control, paper trading, short selling, systematic trading, The Wealth of Nations by Adam Smith

It is not enough to make profits—it is just as important to earn a good performance grade. Grading every entry and exit as well as every trade will train you to adopt a demanding and disciplined attitude towards your work. As a private trader, you have no supervisor. To win, you must become your own manager, and that’s what trade ratings help you accomplish. TWO TYPES OF TRADING There are two key approaches to buying. One is value buying: “buy low, sell high.” The other is momentum buying: “buy high, sell even higher.” A value buyer identifies value and tries to buy near or below it. He aims to sell when prices become overvalued. I put two exponential moving averages on every chart and call the space between them the value zone. My software draws a channel parallel to the daily chart’s slow moving average that encloses about 95% of all prices for the past three months.

Question 28—Grading Completed Trades Find the correct statement about grading completed trades:1. Money is a good measure of the quality of each trade. 2. A long-term trend trader can use channels to measure the quality of trades. 3. A trade capturing over 30% of a channel earns an “A.” 4. A trade capturing less than 20% of a channel earns a “D.” Question 29—Buying Find the incorrect statement about buying:1. The principle of value buying is “buy low, sell high.” 2. The principle of momentum buying is “buy high, sell even higher.” 3. The upper channel line identifies the level of depression and the lower channel line the level of mania in the markets. 4. Momentum trading works well in runaway trends. Question 30—Value Figure 3.30 Please match the following descriptions with the letters on the chart:1. Value zone 2. Below value—consider buying 3.

Shorting at $90.71 and covering at $87.99 gained $2.72, before commissions. The channel was $7.89 tall at the time of the trade. The trade covered 34% of the channel, earning an A grade. It pays to concentrate on points and percentages, and not count money while in a trade. Question 33—Value Buying vs. Momentum Buying Answers 1. B and D 2. A, C, and E The principle of value buying is “buy low, sell high.” The principle of momentum buying is “buy high, sell even higher.” Value buying means going long when prices pull back to or below value. Buying on a breakout above an important earlier peak is a prime example of momentum buying. Notice several additional buying opportunities besides those marked with letters on this chart. GRADING YOUR ANSWERS If a question requires only one answer, you earn a point by answering it correctly.


pages: 606 words: 87,358

The Great Convergence: Information Technology and the New Globalization by Richard Baldwin

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3D printing, additive manufacturing, Admiral Zheng, agricultural Revolution, air freight, Amazon Mechanical Turk, Berlin Wall, bilateral investment treaty, Branko Milanovic, buy low sell high, call centre, Columbian Exchange, commoditize, Commodity Super-Cycle, David Ricardo: comparative advantage, deindustrialization, domestication of the camel, Edward Glaeser, endogenous growth, Erik Brynjolfsson, financial intermediation, George Gilder, global supply chain, global value chain, Henri Poincaré, imperial preference, industrial cluster, industrial robot, intangible asset, invention of agriculture, invention of the telegraph, investor state dispute settlement, Isaac Newton, Islamic Golden Age, James Dyson, knowledge economy, knowledge worker, Lao Tzu, low skilled workers, market fragmentation, mass immigration, Metcalfe’s law, New Economic Geography, out of africa, paper trading, Paul Samuelson, Pax Mongolica, profit motive, rent-seeking, reshoring, Richard Florida, rising living standards, Robert Metcalfe, Second Machine Age, Simon Kuznets, Skype, Snapchat, Stephen Hawking, telepresence, telerobotics, The Wealth of Nations by Adam Smith, trade liberalization, trade route, Washington Consensus

The Italians got 100 kilos of cigarettes for the price of 75 kilos of rice, which means they effectively paid just 7.5 million lira for the 100 kilos of cigarettes instead of the full local price of 10 million liras. It is in this sense that the smuggling can be thought of as a buy-low-sell-high opportunity for both the Swiss and the Italians. The logic is absolutely bulletproof as curious readers can verify for themselves by changing around the numbers in Table 6. The same conclusion holds for any situation where the relative price of cigarettes and rice differ in the two nations—even if Switzerland ends up as the importer of cigarettes. Trade is just legalized smuggling, so the basic two-way gain from smuggling is also the basic reason that all nations gain from trade. That is to say, any time relative prices differ across nations, trade creates a two-way, buy-low-sell-high opportunity. Backing this up one stage—using costs of production to explain national prices—this logic means that all nations can gain whenever their production-cost profiles differ.

Comparative advantage simply means that it is cheaper for some nations to make some goods than others. This is the fundamental reason that nations trade, and it explains why nations export what they do. It is also the root reason why trade can be win-win for all nations regardless of their overall level of competitiveness. Put simply, all nations can gain since trade is what could be called a “two-way, buy-low-sell-high deal.” This can be illustrated with the case of Swiss-Italian smuggling in the 1950s. Just after World War II, few European currencies were “convertible”—that is, they were basically worthless outside their own nation. A French or U.S. bank, for instance, would not exchange Italian lira into dollars or French francs. As a result, smuggling involved the exchange of one type of good for another type (also called “barter” trade).

Since being good at making the good meant that its pre-trade price was lower, this implies that each nation will make more of the good it is particularly good at making, since the internal price of such goods will rise. In the jargon, each nation tends to specialize in its comparative-advantage sector. This sort of reallocation of productive resources is a second source of the gains from trade (the first source was the two-way, buy-low-sell-high deal). The reallocation of productive resources from each nation’s least productive sector to its most productive sector boosts every nation’s average productivity. Comparative Advantage in Action: The Meiji Japan Example Comparative advantage in action can be seen in a fascinating pair of studies by Daniel Bernhofen and John Brown. They look at the economic impact of Japan’s shift from a stance of basically no trade to much more open trade in the decades between 1850 and 1870.1 When trade opened up, some Japanese goods had relatively low prices and some had relatively high prices compared to international prices.


pages: 202 words: 72,857

The Wealth Dragon Way: The Why, the When and the How to Become Infinitely Wealthy by John Lee

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8-hour work day, Albert Einstein, barriers to entry, Bernie Madoff, butterfly effect, buy low sell high, California gold rush, Donald Trump, financial independence, high net worth, intangible asset, Mark Zuckerberg, negative equity, passive income, payday loans, self-driving car, Snapchat, Stephen Hawking, Steve Jobs, Tony Hsieh, Y2K

I believe I could do this because I have learnt, through years of trial and error, the best business practices. I often suggest to my students that they go and watch a fruit and veg seller in action. Go down to a local market and watch them sell. The successful ones make a huge fortune. It's a lucrative business, and a great one to learn in. Alan Sugar started out working for a greengrocer! Business is business. Sugar says it's simple: Buy low, sell high. It's when people start to complicate that process and deviate from it that they tend to fail. If you've lost focus, go back to basics; go watch the market stall owners. It's like in the movie Rocky III when Apollo Creed tells Rocky he's lost his edge; he takes Rocky back to basics at his old gym, where he sees young fighters who are hungry for success, with the “eye of the tiger” in their expressions.

If you reduce your calorie intake by 10 percent and you increase your exercise by 10 percent, you will lose weight, as long as you do not have something medically wrong with you. Voilà encore! A foolproof guide to losing weight. Okay, we didn't invent either formula; they've been around forever, but the fact is they are foolproof insofar as they definitely work. What's the catch? Human intervention! Value investing (and all we are doing here is applying value investing to property) is simple: Buy low, sell high. But people fail because they let their emotions get in the way: for example, they'll get a big tip about a stock and buy it despite the fact that it is overvalued, then become distraught when the tip doesn't pay off. Similarly, in the property market people get seduced by pretty houses and spend too much, then balk as the market dips a bit and they slip into negative equity. It's actually one of the biggest mistakes people make when getting into the property business: living vicariously through their business.


pages: 402 words: 110,972

Nerds on Wall Street: Math, Machines and Wired Markets by David J. Leinweber

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AI winter, algorithmic trading, asset allocation, banking crisis, barriers to entry, Big bang: deregulation of the City of London, butterfly effect, buttonwood tree, buy low sell high, capital asset pricing model, citizen journalism, collateralized debt obligation, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, Emanuel Derman, en.wikipedia.org, experimental economics, financial innovation, fixed income, Gordon Gekko, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, John Nash: game theory, Kenneth Arrow, Khan Academy, load shedding, Long Term Capital Management, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Renaissance Technologies, Richard Stallman, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, semantic web, Sharpe ratio, short selling, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, too big to fail, transaction costs, Turing machine, Upton Sinclair, value at risk, Vernor Vinge, yield curve, Yogi Berra, your tax dollars at work

The biggest piece of the real cost of trading is in the market impact, the price movement caused by the trade itself. Here’s how market impact works. A typical market quote will be along lines of “1,000 shares offered to buy at $50, 1,000 shares to sell at $50.25.” Anyone can buy or sell at those prices in the advertised quantities. This is how specialists and market makers make a living: buy low, sell high. Market impact comes into play when you want to trade in quantities larger than the quoted size. By the inexorable laws of supply and demand, larger buy orders will generally happen at higher prices, and larger sells at lower prices. For our example, a skilled (or lucky) trader trying to buy 50,000 shares would buy the first 1,000 at the quoted $50, and might be able to find the next 49,000 at the same price, or close to it.

Arbitrage and Predictive Strategies Some quantitative strategies work by pure arbitrage, essentially finding the 4.9-cent nickels in the market before anyone else does. Examples are commodities, such as gold, that trade at the same time on multiple markets around the world. Arbitrageurs move in to equalize the disparities between markets when they arise, buying on the low-priced side and selling on the high-priced side. “Buy low, sell high” is what keeps markets together. Those participants with the lowest transaction costs jump in first, and the physics of supply and demand brings prices back in line. Being an arbitrageur is nice work if you can get it, but it is largely a game for only the largest players. Another level of quantitative strategy 190 Nerds on Wall Str eet involves making some kind of a prediction. Increasing predictability increases investment return.

The safest strategy for a specialist (or market maker) is to adjust the prices to keep their inventory (net long or short position in a stock) as close to zero as possible, to stay flat so as to never be left holding the bag when there was a sudden large price move in the stock. But that would conflict with maximizing volume to accommodate temporary imbalances between the flow of buyers and sellers. If a specialist or market maker had a way of anticipating which stocks might have that kind of volatility, he could “roll into a ball” and stay flat in those names, while keeping the buy low/sell high process in high gear on the others. This is why John Mulheren was counting messages on stock message boards. His unmatched market sense told him that if there was a huge spike in overnight message traffic about a stock, it was a good bet that something volatile might happen the next trading day, and at the very least, it was worth a deeper look before commencing his usual aggressive market making.


pages: 505 words: 142,118

A Man for All Markets by Edward O. Thorp

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3Com Palm IPO, Albert Einstein, asset allocation, beat the dealer, Bernie Madoff, Black Swan, Black-Scholes formula, Brownian motion, buy low sell high, carried interest, Chuck Templeton: OpenTable, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, compound rate of return, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial innovation, George Santayana, German hyperinflation, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Meriwether, John Nash: game theory, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, margin call, Mason jar, merger arbitrage, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, Richard Feynman, risk-adjusted returns, Robert Shiller, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, statistical arbitrage, stem cell, survivorship bias, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

Zucker, adapted for ebook Cover design: Pete Garceau Cover photograph: © Leigh Wiener v4.1 ep Contents Cover Title Page Copyright Preface Foreword Chapter 1: Loving to Learn Chapter 2: Science Is My Playground Chapter 3: Physics and Mathematics Chapter 4: Las Vegas Chapter 5: Conquering Blackjack Chapter 6: The Day of the Lamb Chapter 7: Card Counting for Everyone Chapter 8: Players Versus Casinos Chapter 9: A Computer That Predicts Roulette Chapter 10: An Edge at Other Gambling Games Chapter 11: Wall Street: The Greatest Casino on Earth Chapter 12: Bridge with Buffett Chapter 13: Going into Partnership Chapter 14: Front-Running the Quantitative Revolution Chapter 15: Rise… Chapter 16: …And Fall Chapter 17: Period of Adjustment Chapter 18: Swindles and Hazards Chapter 19: Buying Low, Selling High Chapter 20: Backing the Truck Up to the Banks Chapter 21: One Last Puff Chapter 22: Hedging Your Bets Chapter 23: How Rich Is Rich? Chapter 24: Compound Growth: The Eighth Wonder of the World Chapter 25: Beat Most Investors by Indexing Chapter 26: Can You Beat the Market? Should You Try? Chapter 27: Asset Allocation and Wealth Management Chapter 28: Giving Back Chapter 29: Financial Crises: Lessons Not Learned Chapter 30: Thoughts Epilogue Appendix A: The Impact of Inflation on the Dollar Appendix B: Historical Returns Appendix C: The Rule of 72 and More Appendix D: Performance of Princeton Newport Partners, LP Appendix E: Our Statistical Arbitrage Results for a Fortune 100 Company Photo Insert Dedication Acknowledgments Notes Bibliography By Edward O.

Offering explanations for insignificant price changes is a recurrent event in financial reporting. The reporters often don’t know whether a fluctuation is statistically common or rare. Then again, people tend to make the error of seeing patterns or explanations when there aren’t any, as we’ve seen from the history of gambling systems, the plethora of worthless pattern-based trading methods, and much of story-based investing. Chapter 19 * * * BUYING LOW, SELLING HIGH It’s the spring of 2000 and another warm sunny day in Newport Beach. From my home six hundred feet high on the hill I can see thirty miles across the Pacific Ocean to Wrigley’s twenty-six-mile-long Catalina Island, stretched across the horizon like a huge ship. To the left, sixty miles away, the top of the equally large San Clemente Island is just visible above the horizon. The ocean starts two and a half miles from where I sit, separated by a ribbon of white surf from wide sandy beaches.

MISCELLANEOUS (MARKETABLE) PERSONAL PROPERTY Motor vehicles, planes, boats, jewelry, etc. Investors who chase returns, buying asset classes on the way up and selling on the way down, have had poor historical results. The tech bubble that ended in 2000, the inflation in real estate prices that peaked in 2006, and the sharp drop in equity prices in 2008–09 were especially costly for them. On the other hand, the buy-low/sell-high investors, whom you might think of as “contrarian” or “value” investors, have tended to outperform by switching some funds between asset classes. The tables in appendix B show that stocks and commercial real estate have provided the best long-run results for investors. Interest rate investments have been roughly break-even after taxes and inflation, and only modestly positive for nontaxable investors.


pages: 357 words: 91,331

I Will Teach You To Be Rich by Sethi, Ramit

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Albert Einstein, asset allocation, buy low sell high, diversification, diversified portfolio, index fund, late fees, money market fund, mortgage debt, mortgage tax deduction, prediction markets, random walk, risk tolerance, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, survivorship bias, the rule of 72, Vanguard fund

And yet these are the most important investing years of our lives! Another reason young people don’t invest is that they’re scared. You can hear the media scream “Global financial crisis!” only so many times before you decide to opt out altogether. And yet, a drop in the stock market is a good thing for young people. It means investments are essentially on sale, so we can buy stocks for less now and then let our money grow for decades. When people say “buy low, sell high,” this is what they’re talking about. Three Startling Stats About Young People and 401(k)s * * * Remember, a 401(k) is just a type of investment account—one that offers huge benefits that I’ll cover on page 78. Here’s what’s stunning: Of employees age twenty-five and under, Less than one-third participate in a 401(k); Less than 4 percent max out their contributions; And, astonishingly, only 16 percent contribute enough to get the full company match.

In fact, I just made the largest investment of my life, moving $46,000 in my 401(k) from cash into a Fidelity index fund. Am I scared? You bet. $46,000 is a hell of a lot of money. But I’m taking my cues from Warren Buffett, the world’s richest man, who in 2004 gave this advice: “Be fearful when others are greedy and greedy when others are fearful.” Or, to put it in more familiar terms, “Buy low, sell high.” I think the market is low right now, so I’ve made a lump-sum investment. But buying low can be intimidating. Suppose the markets never go back up? Nobody wants to wrestle with a bear. I’m taking a risk by attacking the beast head on. Moves like this don’t bother me as much as they might bother other people (my wife, for example) because my risk tolerance is high. I have twenty or thirty years to go before retirement.


pages: 153 words: 12,501

Mathematics for Economics and Finance by Michael Harrison, Patrick Waldron

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Brownian motion, buy low sell high, capital asset pricing model, compound rate of return, discrete time, incomplete markets, law of one price, market clearing, Myron Scholes, Pareto efficiency, risk tolerance, riskless arbitrage, short selling, stochastic process

Examples are usually in the financial markets, in a multi-period context, e.g. covered interest parity, term structure of interest rates, &c. The most powerful application is in the derivation of option-pricing formulae, since options can be shown to be identical to various synthetic portfolios made up of the underlying security and the riskfree security. The simple rule for figuring out how to exploit arbitrage opportunities is ‘buy low, sell high’. With interest rates and currencies, for example, this may be a non-trivial calculation. Exercise: If the interest rate for one-year deposits or loans is r1 per annum compounded annually, the interest rate for two-year deposits or loans is r2 per annum compounded annually and the forward interest rate for one year deposits or loans beginning in one year’s time is f12 per annum compounded annually, calculate the relationship that must hold between these three rates if there are to be no arbitrage opportunities.


pages: 670 words: 194,502

The Intelligent Investor (Collins Business Essentials) by Benjamin Graham, Jason Zweig

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3Com Palm IPO, accounting loophole / creative accounting, air freight, Andrei Shleifer, asset allocation, buy low sell high, capital asset pricing model, corporate governance, corporate raider, Daniel Kahneman / Amos Tversky, diversified portfolio, Eugene Fama: efficient market hypothesis, George Santayana, hiring and firing, index fund, intangible asset, Isaac Newton, Long Term Capital Management, market bubble, merger arbitrage, money market fund, new economy, passive investing, price stability, Ralph Waldo Emerson, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, sharing economy, short selling, Silicon Valley, South Sea Bubble, Steve Jobs, survivorship bias, the market place, the rule of 72, transaction costs, tulip mania, VA Linux, Vanguard fund, Y2K, Yogi Berra

Second, in stock-market affairs the popularity of a trading theory has itself an influence on the market’s behavior which detracts in the long run from its profit-making possibilities. (The popularity of something like the Dow theory may seem to create its own vindication, since it would make the market advance or decline by the very action of its followers when a buying or selling signal is given. A “stampede” of this kind is, of course, much more of a danger than an advantage to the public trader.) Buy-Low–Sell-High Approach We are convinced that the average investor cannot deal successfully with price movements by endeavoring to forecast them. Can he benefit from them after they have taken place—i.e., by buying after each major decline and selling out after each major advance? The fluctuations of the market over a period of many years prior to 1950 lent considerable encouragement to that idea. In fact, a classic definition of a “shrewd investor” was “one who bought in a bear market when everyone else was selling, and sold out in a bull market when everyone else was buying.”

bull markets; and bargains; characteristics of; and convertible issues and warrants; and dealings with brokerage houses; death/end of; history and forecasting of; length of; and market fluctuations; and new offerings; and portfolio policy for aggressive investors Bunker Ramo Corp. Burlington Northern Railroad Burton-Dixie Corp. Bush, George W. business: buying the; definition of good; knowing your business principles: of Graham, “businessman’s investment,” BusinessWeek buy-low-sell-high approach “buy what you know,” buying back shares. See repurchase plans buzzwords, investing C.-T.-R. Co. Cable & Wireless California Public Employees’ Retirement System calls capital. See also capital gains; capitalization; return on invested capital (ROIC); specific company capital gains; and market fluctuations; and portfolio for aggressive investors; taxes on Capital One Financial Corp.

See also per-share earnings; security analysis; type of report First Tennessee National Bank, Firsthand mutual funds Fischhoff, Baruch Fisher, Kenneth Fisher, Lawrence fixed-value investments. See also type of investment Fleet Boston Financial Corp. Florida real estate, collapse of fluctuations, market; and aggressive investors; and asset allocation; in bond prices; book value and; and brain; and buy-low-sell-high approach; and defensive investors; example of; and forecasting; and formula investment plans; as guide to investment decisions; history of (1871–1972); of investor’s portfolio; managers and; and margin of safety; and mispricing of stock; Morgan’s comments about; and Mr. Market parable; and other people’s mistakes; silver lining to; timing and pricing of; and valuation FMC Corp. Food and Drug Administration, U.S.

Mathematical Finance: Core Theory, Problems and Statistical Algorithms by Nikolai Dokuchaev

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Black-Scholes formula, Brownian motion, buy low sell high, discrete time, fixed income, implied volatility, incomplete markets, martingale, random walk, short selling, stochastic process, stochastic volatility, transaction costs, volatility smile, Wiener process, zero-coupon bond

This strategy ensures a gain when the stock price is increasing. Example 5.11 Merton’s type strategy is a strategy in a closed-loop form when γ(t)=µ(t)θ(t)X(t), where µ(t)>0 is a coefficient, X(t) is the wealth, is the so-called market price of the risk process. This strategy is important since it is optimal for certain optimal investment problems (including maximization of E ln X(T)). Example 5.12 (‘buy low, sell high’ rule). Let T=+∞. Consider a strategy when where C>0 is a constant, τ=min{t>0: S(t)=K}. Here K> S(0) is a ‘high’ price K>S(0), or the goal price. Let X(0)=S(0) and β(t)≡0, then X(τ)=S(τ)=K>X(0). This strategy has interesting mathematical features for the non-degenerate diffusion model (i.e., when σ(t)≥c>0 for some constant c>0). In this case, we have that P(τ<+∞)=1 for all K>0 (i.e., any ‘high’ price will be achieved with probability 1.


pages: 169 words: 43,906

The Website Investor: The Guide to Buying an Online Website Business for Passive Income by Jeff Hunt

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buy low sell high, Donald Trump, frictionless, frictionless market, intangible asset, medical malpractice, passive income, Ralph Waldo Emerson, Skype, software as a service

It seemed better to sell the site for ten months’ earnings than keep it and risk a traffic hit in the next ten months that would dramatically lower the value of the site. • I had unwittingly acquired some sites that were legal to operate but pushed the limits of my own personal ethics. • The website had lost most of its value, and I had no clue how to turn it around. I sold to avoid a total loss. Website flipping is often compared to real estate flipping. However, beyond the principle of “buy low, sell high,” the two have little in common. After a house is purchased and remodeled, it needs to be sold, or it becomes a liability. It is either tying up cash that could be used elsewhere, or it carries ongoing interest and tax expense. After a website is purchased and improved, it is a profitable asset, not a liability. So the rationale for selling a website is fundamentally different than the rationale for selling a house that has been intentionally purchased and remodeled for resale.


pages: 236 words: 77,735

Rigged Money: Beating Wall Street at Its Own Game by Lee Munson

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affirmative action, asset allocation, backtesting, barriers to entry, Bernie Madoff, Bretton Woods, buy low sell high, California gold rush, call centre, Credit Default Swap, diversification, diversified portfolio, estate planning, fiat currency, financial innovation, fixed income, Flash crash, follow your passion, German hyperinflation, High speed trading, housing crisis, index fund, joint-stock company, money market fund, moral hazard, Myron Scholes, passive investing, Ponzi scheme, price discovery process, random walk, risk tolerance, risk-adjusted returns, risk/return, too big to fail, trade route, Vanguard fund, walking around money

One common reason is that if the stock pays a dividend—the earnings of a corporation paid out to its shareholders—you can get cash flow just for holding the shares. Some people just want to accumulate wealth and hold onto stocks forever, but even the desire for endless fortune doesn’t mean an endless holding period. Would you still want to own shares of a typewriter company? Of course the basic assumption of buying and holding a stock is a better bet than the old adage of buy low sell high. The concept we are exploring here is buy and never sell. Who would want to sell a company that is supposed to make profits over the long haul? Plus, how would you know when to sell? If you hold a stock forever, it shouldn’t matter when you buy it since it will be a one-time transaction. This would be fine if most corporations made money in large amounts forever and paid out the profits to you.


pages: 237 words: 64,411

Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence by Jerry Kaplan

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Affordable Care Act / Obamacare, Amazon Web Services, asset allocation, autonomous vehicles, bank run, bitcoin, Bob Noyce, Brian Krebs, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, combinatorial explosion, computer vision, corporate governance, crowdsourcing, en.wikipedia.org, Erik Brynjolfsson, estate planning, Flash crash, Gini coefficient, Goldman Sachs: Vampire Squid, haute couture, hiring and firing, income inequality, index card, industrial robot, information asymmetry, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Loebner Prize, Mark Zuckerberg, mortgage debt, natural language processing, Own Your Own Home, pattern recognition, Satoshi Nakamoto, school choice, Schrödinger's Cat, Second Machine Age, self-driving car, sentiment analysis, Silicon Valley, Silicon Valley startup, Skype, software as a service, The Chicago School, The Future of Employment, Turing test, Watson beat the top human players on Jeopardy!, winner-take-all economy, women in the workforce, working poor, Works Progress Administration

., 182–85 social status, 117 software-as-a-service (SAAS), 43 solar power, 44 song identification, 39 sound recognition, 39, 42–43 Sousa, John Phillip, 208 “The Menace of Mechanical Music,” 192–93 space exploration, ix, 114, 116, 207 sports, 114–15, 161–63 Sputnik, ix SRI International, 27 Standard & Poor’s, 178 standard of living, 165–66 Stanford Artificial Intelligence Lab, x–xi, 27, 35, 38, 51, 52–53, 72, 85 Stanford Legal Informatics course, 148–49 Star Trek (TV series), x, 16 stockholders, 14–15, 58, 174–78 family members vs. diverse base of, 177, 178, 181–82 restricted vesting and, 184. See also assets ownership stock markets: “buy low, sell high” maxim, 53, 54 computer-programmed trading decisions, 52, 53–58, 61–63, 74, 90, 91, 95, 97, 98, 106 fundamental analysis approach to, 62 putative purpose of, 58 sharp drop (2010) in, 8–9, 61–63 strawberry pickers, 143 structural programming, 20–21 structural unemployment, 137 student loans, job mortgage loans vs., 156 Super Bowl, 161–62, 186 Supreme Court, U.S., 90, 215n9 surgery, 6, 35 surveillance, 9, 64–75, 91 swarm robotics, 44 Symantec, 27 symbolic systems, 21–22, 25, 29 predefinition of symbols, 24 synthesizer (music), 194 synthetic intellects, 5–11, 20, 197–209 Amazon building of, 103–6, 134–35 as artificial people, 90, 198 assets ownership and, 90–91, 199–200 capabilities of, 5, 6, 70, 134, 141, 146–48, 151, 199–201 competitive advantage of, 106, 161–62, 186, 187 corporation parallels with, 90, 91, 199–200 crime capability of, 87–89 danger potential of, 7–11, 40, 72–75, 199–208 IBM’s Watson as, 26, 30, 31, 36, 150, 198 individuality of, 88 legal personhood of, 90–91, 199–200 machine learning programs and, 87 moral agency of, 80–92, 105–6, 199–200, 205–6 realism of, 197 remote control of, 12 taxes, 170, 175, 177, 180–81 incentives, 14, 15, 154, 167, 183 taxi services, 16 technological revolution, 29–30.


pages: 270 words: 79,180

The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit by Marina Krakovsky

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Affordable Care Act / Obamacare, Airbnb, Al Roth, Black Swan, buy low sell high, Chuck Templeton: OpenTable, Credit Default Swap, cross-subsidies, crowdsourcing, disintermediation, diversified portfolio, experimental economics, George Akerlof, Goldman Sachs: Vampire Squid, income inequality, index fund, information asymmetry, Jean Tirole, Kenneth Arrow, Lean Startup, Lyft, Marc Andreessen, Mark Zuckerberg, market microstructure, Martin Wolf, McMansion, Menlo Park, Metcalfe’s law, moral hazard, multi-sided market, Network effects, patent troll, Paul Graham, Peter Thiel, pez dispenser, ride hailing / ride sharing, Robert Metcalfe, Sand Hill Road, sharing economy, Silicon Valley, social graph, supply-chain management, TaskRabbit, The Market for Lemons, too big to fail, trade route, transaction costs, two-sided market, Uber for X, ultimatum game, Y Combinator

It’s covered with caked-on mud and has a large rip in its sail, but Wolfe thinks he can sell it for much more than $20 because it’s the kind of toy Benjamin Franklin was writing about back in the 1770s—a true collector’s item. (“That’s what’s great about digging in barns in New York,” he tells us. “You find so much more earlier stuff than you do when we’re in Iowa.”) The Middleman Who Skips the Middleman * * * The show plays up the simple “buy low, sell high” logic of the picking business by displaying, in numbers on the screen, what Wolfe paid for each item and what the item’s worth. But these numbers ignore Wolfe’s less obvious costs. At the end of the pickers’ visit, the hoarder-collector’s daughter and son-in-law are happy, and Wolfe and Fritz look happy, too—but after picking through fourteen trailers, haggling over their picks, and packing their haul into the van, the picking partners are exhausted, and it’s not at all clear they really made a profit.


The Fix: How Bankers Lied, Cheated and Colluded to Rig the World's Most Important Number (Bloomberg) by Liam Vaughan, Gavin Finch

asset allocation, asset-backed security, bank run, banking crisis, Bernie Sanders, Big bang: deregulation of the City of London, buy low sell high, call centre, central bank independence, collapse of Lehman Brothers, corporate governance, credit crunch, Credit Default Swap, eurozone crisis, fear of failure, financial deregulation, financial innovation, fixed income, interest rate derivative, interest rate swap, light touch regulation, London Interbank Offered Rate, London Whale, mortgage debt, Northern Rock, performance metric, Ponzi scheme, Ronald Reagan, sovereign wealth fund, urban sprawl

From the minute he logged onto his Bloomberg terminal and the red light next to his name turned green, Hayes was on the phone quoting guaranteed bid and offer prices on the vast inventory of products he traded. Hayes prided himself on always being open for business no matter how choppy the markets.1 It was his calling card. Hayes likened this part of his job to owning a fruit and vegetable stall. Buy low, sell high and pocket the difference. But rather than apples and pears, he dealt in complex financial securities worth hundreds of millions of dollars. His profit came from the spread between how much he paid for a security and how much he sold it for. In volatile times, the spread widened, reflecting the increased risk that the market might move against him before he had the chance to trade out of his position. 22 THE FIX Making markets offered a steady stream of income, but it wasn’t where the big money came from.


pages: 364 words: 101,286

The Misbehavior of Markets by Benoit Mandelbrot

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Albert Einstein, asset allocation, Augustin-Louis Cauchy, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black-Scholes formula, British Empire, Brownian motion, buy low sell high, capital asset pricing model, carbon-based life, discounted cash flows, diversification, double helix, Edward Lorenz: Chaos theory, Elliott wave, equity premium, Eugene Fama: efficient market hypothesis, Fellow of the Royal Society, full employment, Georg Cantor, Henri Poincaré, implied volatility, index fund, informal economy, invisible hand, John Meriwether, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market microstructure, Myron Scholes, new economy, paper trading, passive investing, Paul Lévy, Paul Samuelson, Plutocrats, plutocrats, price mechanism, quantitative trading / quantitative finance, Ralph Nelson Elliott, RAND corporation, random walk, risk tolerance, Robert Shiller, Robert Shiller, short selling, statistical arbitrage, statistical model, Steve Ballmer, stochastic volatility, transfer pricing, value at risk, Vilfredo Pareto, volatility smile

Another common financial ratio used by stock-pickers is market-to-book: That is, divide the stock price by the per-share value that the company’s accountants report in the financial reports, or “book.” Surprise: Companies with low ratios—that is, those that the stock market values less than does the company’s accountant—perform better over time than companies with high ratios. Of course, this is nothing more than the old Wall Street mantra, buy low, sell high. And again, by the standard theories, it should not work. Many more such anomalies have been reported in economics journals. But this kind of research came to fruition in an especially influential 1992 paper by Fama and French. They tried to create the economic equivalent of a double-blind drug trial, devising tests and controls to prevent any unintended bias from slipping into the results.


pages: 509 words: 92,141

The Pragmatic Programmer by Andrew Hunt, Dave Thomas

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A Pattern Language, Broken windows theory, business process, buy low sell high, c2.com, combinatorial explosion, continuous integration, database schema, domain-specific language, don't repeat yourself, Donald Knuth, general-purpose programming language, George Santayana, Grace Hopper, if you see hoof prints, think horses—not zebras, index card, loose coupling, Menlo Park, MVC pattern, premature optimization, Ralph Waldo Emerson, revision control, Schrödinger's Cat, slashdot, sorting algorithm, speech recognition, traveling salesman, urban decay, Y2K

The more technologies you are comfortable with, the better you will be able to adjust to change. Manage risk. Technology exists along a spectrum from risky, potentially high-reward to low-risk, low-reward standards. It's not a good idea to invest all of your money in high-risk stocks that might collapse suddenly, nor should you invest all of it conservatively and miss out on possible opportunities. Don't put all your technical eggs in one basket. Buy low, sell high. Learning an emerging technology before it becomes popular can be just as hard as finding an undervalued stock, but the payoff can be just as rewarding. Learning Java when it first came out may have been risky, but it paid off handsomely for the early adopters who are now at the top of that field. Review and rebalance. This is a very dynamic industry. That hot technology you started investigating last month might be stone cold by now.


pages: 335 words: 94,657

The Bogleheads' Guide to Investing by Taylor Larimore, Michael Leboeuf, Mel Lindauer

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asset allocation, buy low sell high, corporate governance, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, endowment effect, estate planning, financial independence, financial innovation, high net worth, index fund, late fees, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, market bubble, mental accounting, money market fund, passive investing, Paul Samuelson, random walk, risk tolerance, risk/return, Sharpe ratio, statistical model, survivorship bias, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

Systematically save and invest a part of each paycheck in accordance with the asset allocation plan. The earlier you start, the richer you become. Invest most or all of your money in index funds. Keep your costs of investing and taxes low. Don't try to time the market. Tune out the noise, rebalance your portfolio when necessary and stick with your plan. By doing those things, you will intelligently manage risk. You will buy low, sell high and have the power of compounding working in your favor. You will slowly but systematically build wealth and a nest egg for a comfortable retirement. With a little luck, you will have more money than you dreamed you would ever have. These time-tested techniques have worked for millions of other people and they can work for you, too. Third, forget the popular but misguided notion that investing is supposed to be fun and exciting.


pages: 337 words: 89,075

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio by Victor A. Canto

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accounting loophole / creative accounting, airline deregulation, Andrei Shleifer, asset allocation, Bretton Woods, buy low sell high, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, fixed income, frictionless, high net worth, index fund, inflation targeting, invisible hand, John Meriwether, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, merger arbitrage, money market fund, new economy, passive investing, Paul Samuelson, price mechanism, purchasing power parity, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, selection bias, shareholder value, Sharpe ratio, short selling, statistical arbitrage, survivorship bias, the market place, transaction costs, Y2K, yield curve, zero-sum game

I need to own it.” There is nothing wrong with that at all, and if you select stocks this way you are sure to pick your share of winners. In fact, investors and managers must select this way when it gets down to the nitty-gritty of filling a portfolio. However, I caution that anyone who looks too narrowly in their investing life will all too often miss the big picture and the upsides that come with it. Buy low, sell high? Sure. But keep your eyes open, from the top on down. I have long held that any investor starting out should build an 80/20 portfolio consisting of 80 percent stocks and 20 percent bonds. In the long run, say thirty years, such an investor will almost undoubtedly beat out someone who began with, for example, a 60/40 split. But, a lot can happen along the way. Markets do go up and down. Macro environments do change.


pages: 397 words: 102,910

The Idealist: Aaron Swartz and the Rise of Free Culture on the Internet by Justin Peters

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4chan, Any sufficiently advanced technology is indistinguishable from magic, Bayesian statistics, Brewster Kahle, buy low sell high, corporate governance, crowdsourcing, disintermediation, don't be evil, global village, Hacker Ethic, hypertext link, index card, informal economy, information retrieval, Internet Archive, invention of movable type, invention of writing, Isaac Newton, John Markoff, Lean Startup, moral panic, Paul Buchheit, Paul Graham, profit motive, RAND corporation, Republic of Letters, Richard Stallman, selection bias, semantic web, Silicon Valley, social web, Steve Jobs, Steven Levy, Stewart Brand, strikebreaker, Vannevar Bush, Whole Earth Catalog, Y Combinator

Want to read the papers featuring the most famous results of the sciences? You’ll need to send enormous amounts to publishers like Reed Elsevier.22 Had they been invited to Cupramontana, Reed Elsevier and its fellow publishers would have disputed Swartz’s accusation that they were hoarding the world’s cultural heritage to benefit the rich at the expense of the poor—or, indeed, that anything was venal about their buy-low, sell-high business model. Reed Elsevier profited by publishing academic journals and selling them for a fee. Its digital activities were neither particularly nefarious nor unprecedented. The company was simply using the Internet to develop another distribution channel for its products. In 2003, the Downhill Battle activists had argued that the rise of the iTunes digital music store discouraged musicians and record companies from experimenting with new distribution models, ones that might better serve both musicians and consumers.


pages: 262 words: 93,987

The Buy Side: A Wall Street Trader's Tale of Spectacular Excess by Turney Duff

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asset-backed security, Berlin Wall, buy low sell high, collateralized debt obligation, fixed income, Gordon Gekko, high net worth, urban sprawl, white picket fence

I call Tracey a couple of minutes later and apologize for the canceling of my orders. At the last minute, I say, we decided we didn’t need to short any of those stocks. “Not a big deal,” she manages to say, but she sounds sick to her stomach. Whoever she leaked my orders to must be livid with her. They had to have gotten crushed. Undoubtedly, they paid a much higher price than where they shorted it in front of my fake orders. Trading 101: buy low, sell high. Ooops. Nothing worse than losing a few million dollars in the last minute of the year. Happy New Year, I tell Tracey, but she’s already hung up the phone. I know it’s going to be a happy one for me. EIGHT MONTHS later the city is blistering hot, concrete heat, brick heat. Opening the cab door is like opening the door of a pizza oven. There’s a Mister Softee truck parked across from me.


pages: 323 words: 92,135

Running Money by Andy Kessler

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Andy Kessler, Apple II, bioinformatics, Bob Noyce, British Empire, business intelligence, buy low sell high, call centre, Corn Laws, Douglas Engelbart, family office, full employment, George Gilder, happiness index / gross national happiness, interest rate swap, invisible hand, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, knowledge worker, Leonard Kleinrock, Long Term Capital Management, mail merge, Marc Andreessen, margin call, market bubble, Maui Hawaii, Menlo Park, Metcalfe’s law, Network effects, packet switching, pattern recognition, pets.com, railway mania, risk tolerance, Robert Metcalfe, Sand Hill Road, Silicon Valley, South China Sea, spinning jenny, Steve Jobs, Steve Wozniak, Toyota Production System, zero-sum game

It makes all the noise go away.” I wanted the noise to go away too. > > > Hedgies After a dozen years of working on Wall Street, I find myself running a hedge fund. I’m not even sure how that happened—I’ve either reached the top or the bottom of my profession. If I screw up, it certainly will be the basement. If that wasn’t enough, I am completely and utterly lost—clueless. About the only thing I really know is “Buy low, sell high.” But buy and sell what? There are thousands of different stocks and bonds and currencies and commodities. As an analyst on Wall Street, you just say Buy or Sell, but someone else actually does it. Your call is just a concept. Now it’s real money. Actually, it’s still someone else’s money, but I am now personally responsible for it. If I can make the stake go up in value, I get 20% of the upside (oh yeah, that’s why I’m doing this).


pages: 325 words: 110,330

Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration by Ed Catmull, Amy Wallace

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Albert Einstein, business climate, buy low sell high, complexity theory, fear of failure, Golden Gate Park, iterative process, Menlo Park, rolodex, Rubik’s Cube, Sand Hill Road, Silicon Valley, Silicon Valley startup, Steve Jobs, Wall-E

Steve, Alvy Ray Smith, John Lasseter, me—none of us knew the first thing about how to run the kind of business we had just started. We were drowning. While I was used to working within a budget, I had never been responsible for a profit-and-loss statement. I knew nothing about how to manage inventory, how to ensure quality, or any of the other things that a company purporting to sell products must master. Not knowing where else to turn, I remember buying a copy of Dick Levin’s Buy Low, Sell High, Collect Early, and Pay Late: The Manager’s Guide to Financial Survival, a popular business title at the time, and devouring it in one sitting. I read many such books as I set about trying to become a better, more effective manager. Most, I found, trafficked in a kind of simplicity that seemed harmful in that it offered false reassurance. These books were stocked with catchy phrases like “Dare to fail!”


pages: 296 words: 86,610

The Bitcoin Guidebook: How to Obtain, Invest, and Spend the World's First Decentralized Cryptocurrency by Ian Demartino

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3D printing, AltaVista, altcoin, bitcoin, blockchain, buy low sell high, capital controls, cloud computing, corporate governance, crowdsourcing, cryptocurrency, distributed ledger, Edward Snowden, Elon Musk, ethereum blockchain, fiat currency, Firefox, forensic accounting, global village, GnuPG, Google Earth, Haight Ashbury, Jacob Appelbaum, Kevin Kelly, Kickstarter, litecoin, M-Pesa, Marc Andreessen, Marshall McLuhan, Oculus Rift, peer-to-peer, peer-to-peer lending, Ponzi scheme, prediction markets, QR code, ransomware, Satoshi Nakamoto, self-driving car, Skype, smart contracts, Steven Levy, the medium is the message, underbanked, WikiLeaks, Zimmermann PGP

You don’t necessarily have to beat the likes of this man, but if you are serious about making a profit, you will have to match his level of dedication. On the other hand, Bitcoin is very volatile compared to nearly every other commodity—stocks, precious metals, currencies—so there is a lot of money to be made if you can ride the waves. Of course, if you are interested in day trading at all, you have by now heard the “buy low, sell high” principle that is and always will be the golden rule of investing, regardless of whether you are playing the long or the short game. Everyone knows this strategy, but day trading only works because most people don’t adhere to it. They want to adhere to it, they probably even think they adhere to it, but they don’t. The problem is FOMO—the fear of missing out. The average day trader will see a quick rise in price and think, “Oh, this is the jump we have been waiting for, I’m going to miss it!”


pages: 421 words: 110,406

Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You by Sangeet Paul Choudary, Marshall W. van Alstyne, Geoffrey G. Parker

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3D printing, Affordable Care Act / Obamacare, Airbnb, Alvin Roth, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, Apple's 1984 Super Bowl advert, autonomous vehicles, barriers to entry, big data - Walmart - Pop Tarts, bitcoin, blockchain, business process, buy low sell high, chief data officer, Chuck Templeton: OpenTable, clean water, cloud computing, connected car, corporate governance, crowdsourcing, data acquisition, data is the new oil, digital map, discounted cash flows, disintermediation, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, Haber-Bosch Process, High speed trading, information asymmetry, Internet of things, inventory management, invisible hand, Jean Tirole, Jeff Bezos, jimmy wales, John Markoff, Khan Academy, Kickstarter, Lean Startup, Lyft, Marc Andreessen, market design, Metcalfe’s law, multi-sided market, Network effects, new economy, payday loans, peer-to-peer lending, Peter Thiel, pets.com, pre–internet, price mechanism, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Satoshi Nakamoto, self-driving car, shareholder value, sharing economy, side project, Silicon Valley, Skype, smart contracts, smart grid, Snapchat, software is eating the world, Steve Jobs, TaskRabbit, The Chicago School, the payments system, Tim Cook: Apple, transaction costs, two-sided market, Uber and Lyft, Uber for X, winner-take-all economy, zero-sum game, Zipcar

In a case like this, wise governance may disenfranchise a specific group of stakeholders, such as arbitrageurs, in order to increase the overall health of the ecosystem. High-speed trading on the New York Stock Exchange offers another example. Firms like Goldman Sachs use supercomputers to determine when an order placed in one market will spill over to another market. Then they swoop in to intercept the deal, buying low, selling high, and skimming the margin. This methodology gives a few market participants who can afford massive computing power an unfair advantage over others.35 Such asymmetric market power risks driving away players who feel cheated. To solve this problem, competing exchanges, such as the alternative trading system IEX, are using their own supercomputers to precisely time the order of bids, thereby eliminating the advantages of a Goldman Sachs.36 Architecture can level the playing field, making markets more competitive and fair for all.


pages: 366 words: 94,209

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff

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3D printing, activist fund / activist shareholder / activist investor, Airbnb, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Burning Man, business process, buy low sell high, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, centralized clearinghouse, citizen journalism, clean water, cloud computing, collaborative economy, collective bargaining, colonial exploitation, Community Supported Agriculture, corporate personhood, corporate raider, creative destruction, crowdsourcing, cryptocurrency, disintermediation, diversified portfolio, Elon Musk, Erik Brynjolfsson, ethereum blockchain, fiat currency, Firefox, Flash crash, full employment, future of work, gig economy, Gini coefficient, global supply chain, global village, Google bus, Howard Rheingold, IBM and the Holocaust, impulse control, income inequality, index fund, iterative process, Jaron Lanier, Jeff Bezos, jimmy wales, job automation, Joseph Schumpeter, Kickstarter, loss aversion, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, Marshall McLuhan, means of production, medical bankruptcy, minimum viable product, Naomi Klein, Network effects, new economy, Norbert Wiener, Oculus Rift, passive investing, payday loans, peer-to-peer lending, Peter Thiel, post-industrial society, profit motive, quantitative easing, race to the bottom, recommendation engine, reserve currency, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, social graph, software patent, Steve Jobs, TaskRabbit, The Future of Employment, trade route, transportation-network company, Turing test, Uber and Lyft, Uber for X, unpaid internship, Y Combinator, young professional, zero-sum game, Zipcar

So much for taking charge of our own finances.21 Fully aware of these liabilities, the financial services industry became less concerned about helping people invest for their own futures than about finding ways to make money off that very need: to game the system itself, all the while finding new ways to make investors feel they were getting in on it. This makes the typical pyramid scheme of the original stock market look honest by comparison. On the stock exchange, at least, those who get in early can win—albeit at the expense of those who come in later. That’s just the way investing works. You speculate on the future value of things—buy low, sell high. The patsy is the guy doing the opposite. In the 401(k) game, the patsy is anyone who follows the advice of the human resources department and surrenders a portion of his or her paycheck to the retirement planning industry, all under the pretense of personal responsibility. Extending this trend, digital trading platforms require individual investors to take even more responsibility for their own investments and correspondingly shoulder yet more risk.


pages: 389 words: 109,207

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone

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Albert Einstein, anti-communist, asset allocation, beat the dealer, Benoit Mandelbrot, Black-Scholes formula, Brownian motion, buy low sell high, capital asset pricing model, Claude Shannon: information theory, computer age, correlation coefficient, diversified portfolio, Edward Thorp, en.wikipedia.org, Eugene Fama: efficient market hypothesis, high net worth, index fund, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, John Meriwether, John von Neumann, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Myron Scholes, New Journalism, Norbert Wiener, offshore financial centre, Paul Samuelson, publish or perish, quantitative trading / quantitative finance, random walk, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Rubik’s Cube, short selling, speech recognition, statistical arbitrage, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, traveling salesman, value at risk, zero-coupon bond, zero-sum game

Shannon gave a couple of talks on investing at MIT, circa 1966 and 1971. By then the broad MIT community had heard stories of Shannon’s stock market acumen. So many people wanted to attend one talk that it had to be moved to one of MIT’s biggest halls. Shannon’s main subject was an incredible scheme for making money off the fluctuations in stocks. You can make money off stocks when they go up (buy low, sell high). You can make money when they go down (sell short). You just have to know which way prices are going to move. That, suggested Bachelier, Kendall, and Fama, is impossible. Shannon described a way to make money off a random walk. He asked the audience to consider a stock whose price jitters up and down randomly, with no overall upward or downward trend. Put half your capital into the stock and half into a “cash” account.


pages: 407 words: 114,478

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

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asset allocation, Bretton Woods, British Empire, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, George Santayana, German hyperinflation, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Harrison: Longitude, Long Term Capital Management, loss aversion, market bubble, mental accounting, money market fund, mortgage debt, new economy, pattern recognition, Paul Samuelson, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, South Sea Bubble, survivorship bias, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

Second, precious metals stocks will be profitable if inflation ever again rears its ugly head. During such periods, “hard assets” such as precious metals, real estate, and “collectibles” (e.g., art, rare coins, etc.) tend to do very well. And third, this asset’s random volatility will work in your favor via the rebalancing mechanism. If you can hold precious metals stocks in a retirement account and trade them without tax consequences, the natural buy-low/sell-high discipline of the rebalancing process should earn 3% to 5% per year in excess of the low baseline return for this asset. Be forewarned that this process takes discipline, because you will be continually moving against the crowd’s sentiment. While you are selling, you will be reading and hearing some very compelling reasons to buy, and when you are buying, you will find that others consider it an act of lunacy.


pages: 374 words: 114,600

The Quants by Scott Patterson

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Albert Einstein, asset allocation, automated trading system, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, buttonwood tree, buy low sell high, capital asset pricing model, centralized clearinghouse, Claude Shannon: information theory, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Doomsday Clock, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, fixed income, Gordon Gekko, greed is good, Haight Ashbury, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, index fund, invention of the telegraph, invisible hand, Isaac Newton, job automation, John Meriwether, John Nash: game theory, law of one price, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, merger arbitrage, money market fund, Myron Scholes, NetJets, new economy, offshore financial centre, old-boy network, Paul Lévy, Paul Samuelson, Ponzi scheme, quantitative hedge fund, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Sergey Aleynikov, short selling, South Sea Bubble, speech recognition, statistical arbitrage, The Chicago School, The Great Moderation, The Predators' Ball, too big to fail, transaction costs, value at risk, volatility smile, yield curve, éminence grise

He could short a stock that had moved upward in relation to its pair, profiting when the stocks returned to their original spread. He could also take a long (or short) position in the stock that hadn’t moved, which would protect him in case the other stock failed to shift back to its original price—if the historical spread remained, the long position would eventually rise. Much like Thorp’s delta hedging strategy, it was the old game of buy low, sell high, with a quant twist. After describing his ideas to his superiors, Bamberger was set up on Morgan’s equity desk in early 1983 with $500,000 and a small group of traders. He started making buckets of cash right out of the gate. By September, his group had $4 million worth of long and short positions. In early 1984, it had $10 million. The stake rose to $15 million in October. By 1985, the group was running a $30 million book.


pages: 519 words: 118,095

Your Money: The Missing Manual by J.D. Roth

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Airbnb, asset allocation, bank run, buy low sell high, car-free, Community Supported Agriculture, delayed gratification, diversification, diversified portfolio, estate planning, Firefox, fixed income, full employment, Home mortgage interest deduction, index card, index fund, late fees, mortgage tax deduction, Own Your Own Home, passive investing, Paul Graham, random walk, Richard Bolles, risk tolerance, Robert Shiller, Robert Shiller, speech recognition, traveling salesman, Vanguard fund, web application, Zipcar

At the end of the year, rebalance your portfolio, which simply means shifting money around so your assets are allocated the way you want them to be. Doing this is another way to take the emotion out of investing, because you're investing based on a plan instead of a whim. There are two ways to rebalance: You can sell enough of your winners and buy enough of your losers to bring things back into balance. By selling the investments that have grown and buying those that lag behind, you're following the Wall Street mantra to "buy low, sell high." Be aware, though, that you might owe taxes if you go this route, so check out the tax implications before you sell any securities. If you can afford it, contribute new money to your investment account, but only to buy the assets that need to catch up. For instance, if you only have 34% in bonds instead of your target 40%, add more bonds to bring your portfolio back into balance. By doing this, you don't have to worry about taxes, but you will need some cash on hand.


pages: 467 words: 154,960

Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael W. Covel

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Albert Einstein, asset allocation, Atul Gawande, backtesting, beat the dealer, Bernie Madoff, Black Swan, buy low sell high, capital asset pricing model, Clayton Christensen, commodity trading advisor, computerized trading, correlation coefficient, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, diversification, diversified portfolio, Edward Thorp, Elliott wave, Emanuel Derman, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, fiat currency, fixed income, game design, hindsight bias, housing crisis, index fund, Isaac Newton, John Meriwether, John Nash: game theory, linear programming, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, mental accounting, money market fund, Myron Scholes, Nash equilibrium, new economy, Nick Leeson, Ponzi scheme, prediction markets, random walk, Renaissance Technologies, Richard Feynman, Richard Feynman, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, survivorship bias, systematic trading, the scientific method, Thomas L Friedman, too big to fail, transaction costs, upwardly mobile, value at risk, Vanguard fund, volatility arbitrage, William of Occam, zero-sum game

If you are watching CNBC for prediction of a trend change, you are in trouble, ‘Casey Jones,’ as Jerry Garcia of The Grateful Dead reminds: “Trouble with you is the trouble with me Got two good eyes but you still don’t see Come round the bend, you know it’s the end The fireman screams and the engine just gleams…”26 The Henry theory— statistically corroborated, of course—is that assets, once in motion, tend to stay in motion without changing direction, and that turns the old saw— buy low, sell high—on its ear.27 244 Enron stock was rated as “Can’t Miss” until it became clear that the company was in desperate trouble, at which point analysts lowered the rating to “Sure Thing.” Only when Enron went completely under did a few bold analysts demote its stock to the lowest possible Wall Street analyst rating, “Hot Buy.” Dave Barry February 3, 200228 Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets After breaking down a number of wrongheaded trading beliefs and actions in which, like Casey Jones, investors “still don’t see,” it makes sense to break down the daily strategy of a trend follower.


pages: 349 words: 134,041

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

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accounting loophole / creative accounting, Albert Einstein, Asian financial crisis, asset-backed security, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business process, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial innovation, fixed income, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Meriwether, locking in a profit, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk-adjusted returns, risk/return, Satyajit Das, shareholder value, short selling, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

There were ‘long run equilibrium values’ and trading to capitalize on movement away from equilibrium values due to ‘short term market disturbances’. LTCM was going to purchase ‘cheap’ or ‘underpriced’ securities and ‘hedge’ them by undertaking short sales of ‘expensive’ securities with ‘similar’ characteristics. DAS_C06.QXP 8/7/06 4:43 PM Page 171 5 N The perfect storm – risk mismanagement by the numbers 171 Profits would result when pricing differences corrected. It was the old buy low sell high and the sell high buy low strategy. There were some old favourites as well – tax arbitrage and the standard carry trades. LTCM used leverage, up to 25 times. Individual strategies only yielded small profits, leverage was needed to accentuate the returns. It assured potential investors that risk would be low because the fund would not take directional risks and outright positions. The low risk would allow the fund to use a lot of leverage.


pages: 466 words: 146,982

Venice: A New History by Thomas F. Madden

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big-box store, buy low sell high, centre right, colonial rule, Columbine, Costa Concordia, double entry bookkeeping, facts on the ground, financial innovation, indoor plumbing, invention of movable type, Johann Wolfgang von Goethe, Murano, Venice glass, spice trade, trade route, upwardly mobile, urban planning

Mark was on every banner. Venice had become the Republic of St. Mark. CHAPTER 3 COMING OF AGE: INDEPENDENCE, EXPANSION, AND POWER, 836–1094 Finding two merchants in Muslim Alexandria in the ninth century pilfering the body of a saint is good evidence that Venetians were conducting trade across the Mediterranean Sea at that time. Their overall business model was a simple one: Buy low, sell high. The ninth-century markets on the island of Torcello teemed with activity, just as they would at Rialto in the late tenth century. Venetian businessmen paid handsomely for a wide range of commodities, many of which were grown or produced in Europe and then transported overland or by river to the lagoon. These included foodstuffs, timber, and, of course, the locally produced salt. These goods were then loaded aboard a sailing vessel by an enterprising merchant, who would head out of the lagoon, down the Adriatic, and into the wide Mediterranean in search of profit.


pages: 464 words: 117,495

The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management by Alexander Elder

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additive manufacturing, Atul Gawande, backtesting, Benoit Mandelbrot, buy low sell high, Checklist Manifesto, computerized trading, deliberate practice, diversification, Elliott wave, endowment effect, loss aversion, mandelbrot fractal, margin call, offshore financial centre, paper trading, Ponzi scheme, price stability, psychological pricing, quantitative easing, random walk, risk tolerance, short selling, South Sea Bubble, systematic trading, The Wisdom of Crowds, transaction costs, transfer pricing, traveling salesman, tulip mania, zero-sum game

Trend-following indicators turn down in downtrends and give signals to sell short but oscillators become oversold and give buy signals. Trend-following indicators are profitable when markets are moving but lead to whipsaws in trading ranges. Oscillators are profitable in trading ranges, but give premature and dangerous signals when the markets begin to trend. Traders say: “The trend is your friend,” and “Let your profits run.” They also say: “Buy low, sell high.” But why sell if the trend is up? And how high is high? Some traders try to average out the signals of trend-following indicators and oscillators, but those votes are easy to rig. Just as Republicans and Democrats in the United States keep redrawing electoral districts to create “safe” seats, traders keep selecting indicators that deliver the votes they want to see. If you use more trend-following tools, the vote will go one way, and if you use more oscillators, it'll go the other way.


pages: 385 words: 128,358

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market by Steven Drobny

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Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, buy low sell high, capital controls, central bank independence, Chance favours the prepared mind, commoditize, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, diversification, diversified portfolio, family office, fixed income, glass ceiling, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, John Meriwether, Long Term Capital Management, margin call, market bubble, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, oil shale / tar sands, oil shock, out of africa, paper trading, Paul Samuelson, Peter Thiel, price anchoring, purchasing power parity, reserve currency, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond, zero-sum game

See also Central bank(s)/banking Bank of Canada, 285 Bank of England, 14–15, 113, 152, 161, 166, 175, 274–275, 285 Bank of Japan, 175, 318 Bank paper, 141 Barclays Capital, 134–139, 141, 153 Barings Singapore, 80 Barron’s, 231, 238 Baruch, Bernard, 146–147 Bear/bearish markets, 82–83, 123, 157, 225, 228, 230, 237, 340 Beauty contest, 164–165 Behavioral finance, 152, 159 Bernanke, Ben, 350 Bessent, Scott, 14, 16, 20, 269–288 Bessent Capital, 269 Beta, 8, 282, 328 BHP Billiton, 252 Bid/offer spreads, 45, 61 Big-bet approach, 341–343 Black box trading systems, 332 Black Monday, 11, 212–213 Black Wednesday 1992, 10, 14–17, 29, 114, 275 361 362 Blodgett, Henry, 260 Bond investments, 61, 88, 118, 121–122, 146–147, 157–158, 231, 251 Bond market, 61, 78, 145, 149–151, 193, 225–226, 292, 323, 328 Bond market rout of 1994, 10, 17, 155 Bond prices, 204 Bond rally, 75 Bond specialists, 127 Bonfire of the Vanities (Wolfe), 244 Boom-bust cycle, 167–168 Bosnia, 51 Bottom-up approach, 51, 346 Brady bonds, 296 Brazil/Brazilian real,193, 204, 208–209, 239, 261, 290, 295–296, 327–328, 334–335 Bretton Woods, 6–7, 90, 123, 201 British pound, 14–16, 76, 117, 209, 221–222, 274, 285. See also Sterling Brown Brothers, 271 BTPs (Buoni del Tesoro Poliennali), 85–87 Bucket shops, 36 Buffett,Warren, 278, 292 Bull/bullish market, 83, 107, 123, 217, 225–226, 228, 230–231, 239, 273 Bund/BTP convergence trade, 85–87 Bundesbank, 14 Bunds, 75, 340 Business cycle, global, 328–329 Butterfly options, 46 Buy and hold strategy, 7, 47 Buy low, sell high, 228–229 Buy signals, 226 Call options, 85 Canada, 167 Canadian dollar, 67, 239, 286 Capital allocation, 24, 33, 98–99, 315, 321 Capital preservation, 144, 323–324 Carry trades, 78–79, 110–111, 113, 117–118, 125, 134 Cash market, 85 Caxton, 9–10, 33 Central bank(s)/banking, 32, 40, 83, 139–140, 148, 151–153, 161–162, 167–170, 204, 313, 331 Central banker(s), 13–14, 160, 229, 349. See also Wadhwani, Sushil, Dr.


pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

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activist fund / activist shareholder / activist investor, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Black-Scholes formula, Brownian motion, buy low sell high, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, Eugene Fama: efficient market hypothesis, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, late capitalism, law of one price, Long Term Capital Management, margin call, market clearing, market design, market friction, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, price discovery process, price stability, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, systematic trading, technology bubble, time value of money, total factor productivity, transaction costs, value at risk, Vanguard fund, yield curve, zero-coupon bond

When managed futures investors lose money, it is often because the trend is switching direction and, in this case, they flip their position and get ready to ride the new trend. Arbitrage Strategies Turning to arbitrage strategies, these consist of fixed-income arbitrage, convertible bond arbitrage, and event-driven investment. Fixed-income arbitrage is based on a number of so-called convergence trades. In a convergence trade, you look for similar securities with different prices; then you buy low, sell high, and hope for convergence. Since fixed-income securities usually have a finite maturity, convergence must eventually happen, but the sooner it happens, the more profitable the trade. The biggest risk in convergence trades is that the trader is forced to unwind the trade when the price gap widens and the trade loses money. The economist (and trader!) John Maynard Keynes expressed this risk well: The markets can remain irrational longer than you can remain solvent.

How I Became a Quant: Insights From 25 of Wall Street's Elite by Richard R. Lindsey, Barry Schachter

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Albert Einstein, algorithmic trading, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, asset allocation, asset-backed security, backtesting, bank run, banking crisis, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, Brownian motion, business process, buy low sell high, capital asset pricing model, centre right, collateralized debt obligation, commoditize, computerized markets, corporate governance, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, discounted cash flows, disintermediation, diversification, Donald Knuth, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, full employment, George Akerlof, Gordon Gekko, hiring and firing, implied volatility, index fund, interest rate derivative, interest rate swap, John von Neumann, linear programming, Loma Prieta earthquake, Long Term Capital Management, margin call, market friction, market microstructure, martingale, merger arbitrage, Myron Scholes, Nick Leeson, P = NP, pattern recognition, Paul Samuelson, pensions crisis, performance metric, prediction markets, profit maximization, purchasing power parity, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Richard Feynman, Richard Feynman, Richard Stallman, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, sorting algorithm, statistical arbitrage, statistical model, stem cell, Steven Levy, stochastic process, systematic trading, technology bubble, The Great Moderation, the scientific method, too big to fail, trade route, transaction costs, transfer pricing, value at risk, volatility smile, Wiener process, yield curve, young professional

I JWPR007-Lindsey May 28, 2007 15:39 Leslie Rahl 89 was reluctant to return to a staff role, but accepted, subject to the quid pro quo that after a year I would hire a staff, and organize the function, he would teach me how to trade. I knew almost nothing about trading. When, early on in my staff prioritizing, I was asked by my new boss to prepare the division’s quarterly review, I was at a complete loss as to what to write for the section titled “Trading Strategy.” As a placeholder, I wrote “Buy low, sell high.” The head of the investment bank loved it, and the report went directly to John Reed as written. I had not advanced far in my trading education when fate intervened and gave me a big push. In 1983, the Chicago Board of Trade (CBOT) began exchange trading of options on bond futures. I was offered the opportunity to trade these derivatives as a proprietary trader for the bank’s account because “you don’t know anything about trading, but at least you went to MIT.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel

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asset allocation, backtesting, Black-Scholes formula, Bretton Woods, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, joint-stock company, Long Term Capital Management, loss aversion, market bubble, mental accounting, Myron Scholes, new economy, oil shock, passive investing, Paul Samuelson, popular capitalism, prediction markets, price anchoring, price stability, purchasing power parity, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, survivorship bias, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, Vanguard fund

Momentum strategies, unlike fundamental strategies, rely purely on past returns, regardless of earnings, dividends, or other valuation criteria. Momentum investors buy stocks that have recently risen in price and sell stocks that have recently fallen, expecting that the stock price will, for a time, continue to move in the same direction. While this may seem at odds with the old maxim of “buy low, sell high,” there is substantial research to support this “buy-high, sellhigher” strategy. In 1993, Narasimhan Jegadeesh and Sheridan Titman found that stocks with the highest 10 percent returns over the past six months outperformed stocks with the lowest 10 percent returns by about 1 percent per month over the next six months.13,14 Other technical strategies, such as buying stocks priced near their 52-week high, have also been shown to be successful.15 It should be emphasized that these momentum strategies work only in the short term and should not be part of a long-term strategy.


pages: 426 words: 115,150

Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin, Joe Dominguez, Monique Tilford

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asset allocation, Buckminster Fuller, buy low sell high, credit crunch, disintermediation, diversification, diversified portfolio, fiat currency, financial independence, fixed income, fudge factor, full employment, Gordon Gekko, high net worth, index card, index fund, job satisfaction, Menlo Park, money market fund, Parkinson's law, passive income, passive investing, profit motive, Ralph Waldo Emerson, Richard Bolles, risk tolerance, Ronald Reagan, Silicon Valley, software patent, strikebreaker, Thorstein Veblen, Vanguard fund, zero-coupon bond

The important thing is to become as knowledgeable as you can regarding your investment options so that, if you choose to work with a financial planner, you will still be empowered and making your own choices. Dispelling Fears Like your assumptions about money and work, your beliefs about investing have probably been pieced together from media hype, the opinions of coworkers, the advice you got from Uncle Harry (“Buy low, sell high, kid”), randomly generated successes and failures and sundry other unreliable sources. To pierce through these confusions and prejudices you need only recognize that most beliefs about investing rest on two primary driving forces: greed and fear. Hopefully you’ve encountered and tamed your greed through applying the first eight steps of this program. You know, through experience, that more is not necessarily better, while “enough” is both supremely fulfilling and achievable.


pages: 624 words: 127,987

The Personal MBA: A World-Class Business Education in a Single Volume by Josh Kaufman

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Albert Einstein, Atul Gawande, Black Swan, business process, buy low sell high, capital asset pricing model, Checklist Manifesto, cognitive bias, correlation does not imply causation, Credit Default Swap, Daniel Kahneman / Amos Tversky, David Heinemeier Hansson, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, discounted cash flows, Donald Knuth, double entry bookkeeping, Douglas Hofstadter, en.wikipedia.org, Frederick Winslow Taylor, George Santayana, Gödel, Escher, Bach, high net worth, hindsight bias, index card, inventory management, iterative process, job satisfaction, Johann Wolfgang von Goethe, Kevin Kelly, Lao Tzu, loose coupling, loss aversion, Marc Andreessen, market bubble, Network effects, Parkinson's law, Paul Buchheit, Paul Graham, place-making, premature optimization, Ralph Waldo Emerson, rent control, side project, statistical model, stealth mode startup, Steve Jobs, Steve Wozniak, subscription business, telemarketer, the scientific method, time value of money, Toyota Production System, tulip mania, Upton Sinclair, Vilfredo Pareto, Walter Mischel, Y Combinator, Yogi Berra

The key to Subscription offers is doing everything you can to keep customer attrition as low as possible. As long as you continue to make your customers happy, only a small percentage of your customer base will cancel each period, giving you the ability to plan your finances with more certainty. Any subscriber attrition you experience can be overcome by enrolling more customers. SHARE THIS CONCEPT: http://book.personalmba.com/subscription/ Form of Value #5: Resale Buy low, sell high. —STOCK TRADER’S MAXIM Resale is the acquisition of an asset from a wholesale seller, followed by the sale of that asset to a retail buyer at a higher price. Resale is how most of the retailers you’re familiar with work: they purchase what they sell from other businesses, then resell each purchase for more than it cost. In order to provide value as a reseller, you must:1. Purchase a product as inexpensively as possible, usually in bulk. 2.


pages: 425 words: 122,223

Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein

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Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, buy low sell high, capital asset pricing model, corporate raider, debt deflation, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, full employment, implied volatility, index arbitrage, index fund, interest rate swap, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, law of one price, linear programming, Louis Bachelier, mandelbrot fractal, martingale, means of production, money market fund, Myron Scholes, new economy, New Journalism, Paul Samuelson, profit maximization, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, stochastic process, the market place, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, transfer pricing, zero-coupon bond, zero-sum game

Meanwhile, Fouse was designing another product that has become increasingly important for Wells Fargo: tactical asset allocation, a method of calculating separately the expected returns for the stock market, the bond market, and the market for cash equivalents like Treasury bills. Then the assets are shifted to the market or markets that appear relatively most attractive. Although Sharpe (and Vertin, too) was skeptical about the feasibility of this idea at first, Fouse managed to successfully combine Sharpe’s theoretical concepts with the ideas of Markowitz, Tobin, and John Burr Williams. Although the notion is buy-low-sell-high, tactical asset allocation differs from so-called market timing in two ways. First, it is a scientific method of allocating assets. Second, the idea is to buy undervalued assets and to sell overvalued assets and to wait until the market corrects the perceived misvaluations; this approach differs fundamentally from flatly declaring that “this is the bottom” or “this is the top.” Fouse and Vertin soon established a fee-based consulting service within Wells Fargo to help corporate pension funds and other institutional investors to apply the ideas they were putting into practice.


pages: 713 words: 203,688

Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough, John Helyar

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buy low sell high, corporate raider, Donald Trump, Gordon Gekko, margin call, Ronald Reagan, Rubik’s Cube, shareholder value, South Sea Bubble

Despite his social ascension, Johnson started off miserably at GSW, a tiny maker of appliances, garbage cans, and manure spreaders. When an economic downturn slowed its appliance business, Johnson’s impulse was to throw money at the problem, and he fell back on the expensive marketing schemes he’d developed at Eaton and GE. His new boss, a tightfisted hard case named Ralph Barford, rejected each one in turn. “Ralph’s philosophy was buy low, sell high, and argue over the bills,” recalled Jim Westcott, a Johnson friend who would frequently commiserate with him over lunch. “Boy, did Ralph rip the skin off my back today,” Johnson would moan. Johnson chafed at life in a smaller company. GSW was operating on the edge, with lots of debt, and Johnson suffered through weekly grillings by its bankers. “It was a shock,” he recalled. “You learned that the guy who writes the ads for the bank isn’t the guy who loans the money.


pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

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Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, survivorship bias, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

However, short-term market-timers may also join the bandwagon while the bubble keeps growing; and there is a cross-sectional counterpart for this behavior. Specifically, momentum-based stock selection strategies that involve buying recent winners appear profitable. Next, I discuss the literature on value and momentum strategies which initially focused on the U.S. equity market. Cross-sectional trading strategies may be relatively value-oriented (buy low, sell high) or momentum-oriented (buy rising stocks, sell falling ones; essentially buy high, sell low)—and they may be applied within one market (say, equities) or across many asset markets. Micro-inefficiency refers to either the rare extreme case of riskless arbitrage opportunities or the more plausible case of risky trades and strategies with attractive reward-to-risk ratios. Cross-sectional opportunities are safer to exploit than market-directional opportunities—one can hedge away directional risk and diversify specific risk much more effectively.


pages: 846 words: 232,630

Darwin's Dangerous Idea: Evolution and the Meanings of Life by Daniel C. Dennett

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Albert Einstein, Alfred Russel Wallace, anthropic principle, assortative mating, buy low sell high, cellular automata, combinatorial explosion, complexity theory, computer age, conceptual framework, Conway's Game of Life, Danny Hillis, double helix, Douglas Hofstadter, Drosophila, finite state, Gödel, Escher, Bach, In Cold Blood by Truman Capote, invention of writing, Isaac Newton, Johann Wolfgang von Goethe, John von Neumann, Murray Gell-Mann, New Journalism, non-fiction novel, Peter Singer: altruism, phenotype, price mechanism, prisoner's dilemma, QWERTY keyboard, random walk, Richard Feynman, Richard Feynman, Rodney Brooks, Schrödinger's Cat, selection bias, Stephen Hawking, Steven Pinker, strong AI, the scientific method, theory of mind, Thomas Malthus, Turing machine, Turing test

Darwin appreciated that only a relentlessly detailed survey of the evidence for the historical processes he was postulating would — or should — persuade scientists to abandon their traditional convictions and take on his revolutionary vision, even if it was in fact "deducible from first principles." {50} From the outset, there were those who viewed Darwin's novel mixture of detailed naturalism and abstract reasoning about processes as a dubious and inviable hybrid. It had a tremendous air of plausibility, but so do many get-rich-quick schemes that turn out to be empty tricks. Compare it to the following stock-market principle. Buy Low, Sell High. This is guaranteed to make you wealthy. You cannot fail to get rich if you follow this advice. Why doesn't it work? It does work — for everybody who is fortunate enough to act according to it, but, alas, there is no way of determining that the conditions are met until it is too late to act on them. Darwin was offering a skeptical world what we might call a get-rich-slow scheme, a scheme for creating Design out of Chaos without the aid of Mind.