The Zurich Axioms

This is an old book... heard umpteen times, but never reach my hand until a buddy send me the said book as a token of appreciation... Wow, what a token it turns out to be...

Yes, it is a superb book... The axioms by the Zurich... the rules of risk and reward used by generations of Swiss bankers... So, how superb it is? The axioms as listed below are good enough to "seduce" me, LOL...

Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough. ~~~ What a quote! The wording of "worry" becomes so positive under Max Gunther. The best part is... this is a quote from someone in year 1985. Incredible!

You may think you'd rather be an investor than a speculator. Being an investor sounds safer. ~~~ Hmm.... "Speculating" is never a good word. But, I love the word so much!!! LOL.

Gerald Loeb: "All investment is speculation. The only difference is that some people admit it and some don't." ~~~ Hmm... Like I said above... I love the word! So, I am proud to be part of it!!!

Diversification, while reduce your risks, reduce by the same degree any hope you may have of getting rich. ~~~ Very true.... Warren Buffet always questioning the effectiveness of diversification. In fact, Hong Kong tycoon Lee Ka-Shing used to said that he focus on every single project until it comes to the end before moving on to the others despite his company's public image as a huge conglomerate.

You make more money when you control your greed ~ Always take your profit too soon. It refers to the need to cash out before a set of winning events has reached its peak. Don't ever try to squeeze the last possible dollar from a set. ~~~ Sounds a bit contradict... in fact, very controversial too, LOL. I agreed that we just cannot squeeze the last possible dollar from a set. That is why I hardly look at the so called "peak" or bottom. In fact, I am willing to let go certain portion as long as the said portion does not affect hugely and damages is keep at certain limit. However, I am never a believer of profit taking. The reason on why I am not looking to squeeze the last possible dollar is actually due to the facts that I know I would not be able to search for the exact peak or bottom. Since I know I cannot predict, I found no reason to take profit without a valid reason. Ok, a small flaw from the Swiss banker... LOL

Knowing how to get out of a bad situation may be the rarest of all speculative gifts. It is rare because it is difficult to acquire. It takes courage and a kind of honesty with a cutting edge like a razor blade.~~~ This is tough although it is a must! I believe not many can act firmly even when there is a plan in advance. However, it is a must since it limits the financial damages.

When the ship starts to sink, jump. Note the wording: when it starts to sink. Don't wait until it is half submerged.~~~ Again... tough but a must!

If you hope to get anywhere as a speculator, you must get our of habit of listening to forecasts... Of course, they are right sometimes, and that is what makes them dangerous.~~~ It reminds me of the noises as mentioned by Nate Silver: The economic data is very poor and the theory is very weak!

Human behaviour cannot be predicted. Since all money -world forecasts are about human behavior, you should not take any of them seriously.~~~ Bingo!!!

Chaos is not dangerous until it begins to look orderly. ~~~ What a quote!!!

History repeats itself sometimes. But, most often it doesn't, and in any case it never does so in a reliable enough way that you can prudently bet money on it. ~~~ Exactly, that is why past performances do not reflect current results!!!

Representing numbers by lines on graph paper can be useful or dangerous. It is useful when it helps you visualize something with greater clarity than you could achieve with numbers alone. It is dangerous when it makes the thing represented look more solid than it really is.~~~ This issue had been argued for decades... My view remains that whichever ways work for you; stick with it! I am with the author in this case....

Gambler's Fallacy tends to encourage that failure, for it engenders the feeling that one is temporarily invincible. That is a dangerous feeling to have. Nobody is invincible.~~~ Yes... even the "Invincible Gunners" fail completely at the moment, LOL.

Never get attached to things, only to people. Getting attached to things decreases your mobility, the capacity to move fast when the need arises. Once you get yourself rooted, your efficiency as a speculator goes down markedly.~~~ How true... "Thing" should never be a factor in deciding speculation. End of the day, money-world forecasts are purely about human behaviour!

No matter how good a hunch feels, don't let it lull you into a state of overconfidence. Stay worried. Intuition can be a useful speculative tool, but it isn't the long-sought, infallible formula for 100 percent correct money decisions. ~~~ In my humble opinion, intuition itself never exists. As such, I found no logic to even discuss it!

Optimism means expecting the best, but confidence means knowing how to handle the worst. Never make a move if you are merely optimistic. ~~~ Again, optimism never exists for a mechanical trader. It is more about data and nothing more important than data. However, I admit that I am an optimistic person, LOL.

Perseverance is like optimism: It is certainly good advice for spiders and kings, who are usually born rich. For ordinary men and women like you and me, struggling to make a buck, it is advice that should be heeded selectively. ~~~ Ha... I like the way the author describes perseverance with the example of spiders and kings. Yes, we respect the magnificent attitude by spiders in creating the web. But, we just envy kings who were born with silver spoon... The author's main point is, you must defeat the wish to persevere when perseverance will lead you astray...

Don't try to make long range plans or allow other people to make them for you. They will only get in your way. Instead of attempting to organize your affairs to accommodate unknowable events in the future, react to events as they unfold in the present. When you see opportunities, go for them. When you see danger, jump out of the way. ~~~ I remember how Michael Covel said this in his famous book, Trend Following: "It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change." As such, Michael Covel emphasizes on "Now" rather than past or future. Coincidentally, Swiss bankers seem to think so too...

The long term investors are the big gamblers. Betting on tomorrow is chancy enough. Betting on a day twenty or thirty years in the future is absolutely crazy. ~~~ It is again about the "Now" as emphasized by Michael Covel....

On life insurance... he wants you to commit your good money for twenty or thirty years, but the deal is probably less long-term for him than it is for you. Meaning, he collects a good proportion of those thirty years' commissions in the first year or two. ~~~ What a statement to stop those agents from harassing me in the future, LOL. No offence to agents around, but I will only buy it for my family members... Well, similar to the author's opinion; it is more about pay off on my death and the cheapest insurance terms are good enough to serve this purpose.

Wow, wow, wow... what a book with tons of great axioms!!! In my humble opinion, it is not only some axioms. It serves as splendid wisdoms and great reminders for those who are serious in the world of speculating. Special thanks must be given to the buddy who awards me with this book. Hey, friend, what a nice gift!!! Thank you so much!!!

In fact, this is the first book that criticizes my idol, Jessie Livermore. Perhaps, criticizing is not the best word to describe the author's view. I think, "A concreate yet subjective opinion" are more suitable. All right... ok...  it is "suitable" since it represents my view too, LOL.

To be honest, this book is really a book with tons of values. Although it is full of theories rather than practical examples, I believe it creates a great groundwork for speculators around the world. Having said that, I highly recommend this book for anyone who is serious to build up mental strength towards the success route of speculation. Rating wise; well, zero flaws... so, it is a 10/10!!! This book has earned a place on my very short list of valuable books!

The Zeroes: My Misadventures in the Decade Wall Street Went Insane

The Zeroes... It is all the zeroes that count; it is all the zeroes that a trader switch between hero and villain... Of course. it is all the zeroes that cause Randall Lane to produce a remarkable and terrific stories...

As printed on the cover, it is a story and misadventures by the author in the decade when Wall Street went insane. However, it is actually not a pure Wall Street trading adventures. It is actually about a magazine company exclusively for and about traders. As mentioned at the beginning of the book, traders didn't actually earn money - they made it. In fact, this is the ideas behind the said magazine. The author initially focus on how traders see it, make it and how they spent it. A good quoted example is: "For most of us, money equals time. Work a fixed amount of hours and get paid a fixed amount. At Macfutures, there was no correlation... It was an impulsive reward for one smart, or lucky push of a button."... Very true!!!

Unfortunately, the author's company and his life saving were destroyed completely when the crash hit. The initial motto of "See it, Make it, Spent it" ended up with "See it, Spend it, End it"... How cruel it can be and that is why we read this in the book: "Greed is ugly... Make as much money as you can so you can get out of there before it turns you to the Dark Side ~ Fame, it seemed, could prove ugly too." ... Hmm....

To me, this is a very interesting book. Entertainment wise, it is not dull at all. Well, please do not treat it as one of those boring investment stories. End up, we have more than that, as peoples involved in the stories are not purely financial peoples. For example, we have John Travolta, Al Gore and Diana Ross. In fact, reading this book is relaxing too... After all, this is a book that reads like a novel. The true story feels like a fiction and I think every reader will enjoy every single journey created by the author. Credit must be given to the author. He wrote a true story on Wall Street and entrepreneurialism with simple wording... Yet, it is attractive enough for readers to get hooked from the first page! Well, this is also one of the reasons that I finish it in such a short period.  I just could not put down the book, LOL.

Having said that, I love this book as it really entertains me for the past 48 hours. However, I must admit that it remains as entertainment and the whole book does not provide me with much of lessons to learn. Frankly, I hardly touch novels. (Oppsss... it is not a novel, LOL). Besides, I think this is one of those stories behind the famous crash.(IMHO, nothing great...) Relatively, Randall's case may not be the worst. I think I personally seen worse scenario than that. At the end, I really find myself do not benefit much from this book despite the entertainment part. As such, although I love this book, I am rating it at 5/10. This book will be one of those books that I would not repeat in the future. At the end, I very much enjoy it. But, I simply do not benefit much from reading it...

The Signal and the Noise: Why So Many Predictions Fail — but Some Don't

This is a similar book to the Swan... The author Nate Silver is well-known in predicting and forecasting. If the swan talks  about how important it is to accept the unpredictable extraordinary stuff, Nate Silver will present to us tons of noises and "unknown unknown" that can hurt us in long run. As mentioned by the author: "If our appreciation of uncertainty improves, our predictions can get better too."

My first glance on chapters presented in this book did enough to attract me in the first place. Chapter one is about the catastrophic failure of prediction. Here we are presented with the idea of rating agencies who helped in repackaging the CDOs. As mentioned in the book, it is not about stupidity. End up, these peoples simply do not want the music to stop. One of the very nice quotes in this chapter is: The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at or repair. How true... especially when we are dealing with something "out of sample" ...

Chapter two kick off with a very good question: Are you smarter than a television pundit? The author is well-known for his projections in political affair. As such, this chapter capitalize on the author's strength. Chapter 3 is my favorite chapter. It is about winning and losing via baseball game. Those who love "Moneyball" (I love it so much!)will surely love this chapter... One surprise discovery is that the author did consult a Malaysia company while serving for KPMG. Hmm.. the world is really flat! LOL...

Chapter 4 is about weather forecasting and chapter 5 is about earthquake forecasting. Honestly, the said two chapters really blew me away. Ok, I admit that I have zero knowledge in both industries. As such, the evolution of both industries is like an amazing journey to me. After all, both industries are full of numerous uncertainties. Hence, professionals in these industries need to convert such uncertainties into risks. In another words, they are changing something immeasurable into something measurable; even though the measurable does not imply all time accuracy. The best part is... both industries although similar in certain way, the final outcome is very contradict.

By going through weather and earthquake, the author finally turned his attention to economic forecasting in chapter 6. Ok, we all know how bad an economic indicator can be. Well, noises basically do not run far regardless of weather, earthquake or economics. It is the same old stories except it happens ineffectively in a supposed effective capitalism system.

Similar cases happen in chapter 7 when the author presented tons of role models that suppposed to help us in forecasting. Yet, the said models fail once again when noises are obviously much more than the actual facts.  In fact, "noises" in the universe are mostly covered from Chapter 1- 7. All 7 chapters provide tons of approximations where some served us well and some failed us completely. Chapter 8 and the remaining chapters deal with methodoloy on how to filter noises and make them better. At least, a little bit at a time, LOL.

Chapter 8 started with an amazing story by Bob Voulgaris where he utilizes facts and try to distant himself from noises. At the end, his forecasting is so much successful. This is follow by the Bayesian Reasoning model (What a model in applied Statistic!!!) and the amazing human brains that defeated programmed chess players (computer). In chapter 10, we have poker games, one of the most important stuff in forecasting. Chapter 11 is another favorite of mine where chartists are being question once again, LOL. The last two chapters focus on the climate of health and the famous terrorist attack.

Finally.... it comes to the end and I must admit that it is very tough to finish a book with more than 500 pages. Fortunately, this is a book with topics that I like. Otherwise, it is very hard to digest some of the "unknown unknown" stuff, LOL. Overall, this is an excellent book to explore especially when we are presented with millions and zillions of noises, thanks to the advancement in information technology these days. However, I think it will be much better if the thickness can be reduce, LOL. Having said that, I am rating this book at 9/10. After some pollution in the last read, thank god that Nate Silver did not disappoint me at all. Thumbs up!

Lastly, listed below are quotes that I personally like it so much:

1. In statistics, the name given to the act of mistaking noise for a signal is overfitting.

2. You are most likely to overfit a model when the data is limited and noisy and when your understanding of the fundamental relationships is poor.

3. Successful gamblers - and successful forecasters of any kind - do not think of the future in terms of no-lose bets, unimpeachable theories, and infinitely precise measurements.

4. This is why our predictions may be more prone to failure in the era of Big Data. Most of the data is just noise, as most of the universe is filled with empty space.

5. Purely statistical approaches toward forecasting are ineffective at best when there is not a sufficient sample of data to work with.

6. If you do detect a pattern, particularly an obvious-seeming one, the odds are that other investors will have found it as well, and the signal will begin to cancel out or even reverse itself.

7. The answer as to why bubbles form, is that it's in everybody's interest to keep markets going up!

8. The winner's curse ~~~ Although of some of the students's bids are too low and some are about right, it's the student who most overestimates the value, who is obligated to pay for them. The worst forecaster takes the "prize".

9. He went to Harvard and has been doing it for 25 years. How can he not be smart enough to beat the market? The answer is: Because there are nine million of him and they all have the same computers that are collocated in the NYSE.

10. Bayes's theorem holds that we will converge toward the better approach. Bayes's theorem predicts that the Bayesians will win.

11. Amateur players, when presented with a chess problem, often frustrated themselves by looking for the perfect move, rendering themselves incapable of making any move at all.

12. Chess masters, by contrast are looking for a "good" move - and certainly if at all possible the best move in a given position -  but they are more forecasting how the move might favorably dispose their position than trying to enumerate every possibility.

13. In economic forecasting, the data is very poor and the theory is weak. Hence, the more complex you make the model the worse the forecast gets.

14. The more complex you make the model the worse the forecast gets is equivalent to saying "Never add too much salt to the recipe."

15. The more often you are willing to test your ideas, the sooner you can begin to avoid these problems and learn from your mistakes.

Harmonic Trading, Volume One: Profiting from the Natural Order of the Financial Markets

Harmonic Trading ~~~ A system of critical decision making based on the natural order of life. What a definition! In fact, this definition did enough to attract me in the first place. However, it proved my naivety once again...

Yes.. In my humble opinion, this is another pollutant stuff. The so called "natural order of life" is actually the famous Fibonacci calculation which was circulated in traders' circle since day one. Harmonic trading just utilizes its calculation and patterns being develop through "carefully selected" charting. Why I said it was selected carefully? Well, similar with most analysis; the main criteria in selecting a chart is to suit the accuracy of analysis. In another word, it may works at certain times; but, it would not work in other times. So, the problem is: what is the contingency plan when it does not work? Your guess is as good as mine...

I am not trying to be sarcastic. At the end; from the perspective of mathematics, a figure remains a figure. As such, a price remains a price. For the price to repeat what it did in the past, certain conditions have to be met. That kind of "condition" varies greatly even within similar context. That is why trading is tough and not as simple as "harmonic trading". Even if the "harmonic" stuff is excellent enough, traders will face another immediate problem: What is the time frame to choose for each respective product? (market?) Every now and then, are we going to stick with the same time frame? Again, your guess is as good as mine... LOL.

In my humble opinion, different time frames mean too many parameters relative to the number of observations. As a result, over-fitting (which describes random error instead of the real relationship) occurs and an over-fitting model will have poor predictive performances. So, this is what it bothers me while I tried to digest the whole book....

Having said that, this book definitely not my cup of tea. This book is on title one. Meaning, there is another title to explore. In fact, I did flip through the volume two. In my humble opinion, it is another over-fitting stuff with tons of historical evidences which might or might not occur in the future. Rating wise; out of 10, I am not going to give any point to this book. End of the day, it does not benefit me at all...

P/s: This is not a how-to introduction book. As such, do not be surprise if you could not settle into it as it is a real hard read thanks to the very brief explanation. 

My Life As A Quant

This is a special biography... a biography between the field of physics and finance. In fact, it is a book that divided equally between physics and finance since the author began his career as a physicist and came to finance relatively late in his life... As mentioned by the author: "Character and chance counted at least as much as talent. Luck, combined with the capacity to persevere played an overwhelmed role." How true for a person who transformed himself from a theoretical physicist to becomes an employee of Goldman Sacs and Salomon Brothers in his late careers..

To be honest, I do not really enjoy this book for few reasons. First of all, I have to admit that I am not familiar with physics stuff. As such, it is torturing to read through the first part of the author's memoir. Basically, the first part is mostly about the life of a physicist. There is zero finance related issue. Secondly, I am rather disappointed with the brief explanation in quantitative finance. Perhaps, my expectations were too high. I thought the author will reveal tons of quantitative finance stuff. In fact, the subtitle "Reflections on physics and finance" really confuse me in the first place. If I treat this book purely as "My Life As A Quant", then perhaps my expectations could be lower. End of the day, I think the title itself is kind of misleading too.. After all, the author becomes a quant in his late career. As such, I do not see this as a perfect memoir for a quant. In fact, it is more on the transformation rather than a real quant's adventures.

To be frank, just before the second part coming in, I almost gave up this book umpteen times. Fortunately, my perseverance helps to move myself into the second part. Yes, that is the moment when the author decided to venture into the world of investment. Ok, the second part is more entertaining. At least, I fully understand what he wanted to express, LOL. In fact, the second half of the biography is all about the blending of physics and finance. Of course, the amazing stories were full of human emotions too.

Finally, I am not discounting the author's contribution to readers around the world. From this book, readers can peep in the inner workings of a major investment bank. The quant although did not appear in the whole book, but readers can see through the process on how a quant plays his role in new products as well as investment strategies. However, I cannot deny the facts that I hate reading something that I do not understand. In fact, I do not think I will purchase any physic books for the rest of my life, LOL. Having said that, I really find it hard to rate this book highly... Ok.. since I hate first half of the book while I kind of enjoying the second half, I am going to rate this book at half of 10. Fair enough, right? LOL... 

45 Years In Wall Street

W.D. Gann, the legend in Wallstreet.. In fact, I read a lot about him and I read a lot of his books too. However... somehow; I missed out this book... Sounds weird, but true; LOL...

First of all, I must admit that I am a big fan of Gann.... However, I am a sensible fan. I will not blindly supporting someone or something without real evidence. With my little experiences in this industry, there are few things which I could not agree more:

1. The one time that the stop loss order gets you out wrong, it makes up for it in the next nine times that it gets you out right. So, don't fail to use a stop-loss order. ~~~ Nine successes and one failure trade sounds too ideal in the world of investment although I do agree on the importance of stop-loss.
2. My time rule, which will help you in pyramiding, is to determine the time of the first reaction... This time rule, like other rule, works best on active high-priced stocks and should only be applied in active markets. ~~~ I love histories. But, I do believe histories reoccur only when situation allows...Furthermore, I am not a big fan of crystal ball. As such, this statement from my gurus is consider too "TA" to me, LOL.

Then, I am really frustrated with the case study on Dow Jones... Well, it did reflect the legend's 45 years in Wall Street. However, this type of case study seems misleading. The author tends to drew a conclusion after studied a specific sample. End of the day, this may end up as a fat tails that trapped plenty of traders into it. If a sample is so useful, statistic would not remain as merely statistic, LOL.

Similarly, I could not agree on the calculation of percentages that act as resistances and supports. At the end, it does not reflect the whole picture and it is just another sample that may works in certain time and may not be working at all in other time. End of the day, betting itself is about consistency. Losing consistently and winning consistently are major components that shape up the whole strategy. If a fixated percentage is good enough to determine a price movement, market itself would not be so complicated.

Well, please do not get me wrong... I still think this is a nice book...In fact, I find certain phrases and quotes which are good enough to serve as excellent reminders. For example; contradict to the general belief that change is important (Who moved my cheese? LOL); as according to my idol: In Wall Street, the man who does not change his mind will soon have no change to mind. What a statement!!! LOL... Then, we got this very important chapter where the author express his view on the downfall of past market operators. On Lighter, Sully, Theodore H. Price and Eugene Scales, he concluded that most operators lost their money because they have only the desire for the power that money can give and want to corner the markets. On Jesse L. Livermore, the author thought that the said legend never studied the rules for keeping money. Besides, Jesse L. Livermore was portray as a man who wanted to rule and did not figure that the unexpected could happen. Same comment was made for the review of Doctor E. A. Crawford and Jordon of new Orleans. The author concluded the whole chapter by listing out some of those who are success in contradict to those who failed. To me, this is the best chapter of the whole book. I believe that there are plenty of ways to get successes. However, the factors behind failure stories do not seems to vary much. As such, it is easier to study failure stories compares to those big amounts of success achievements. After all, we do not really find plenty of failure stories available in the market....

Last but not least, this is how the author concluded his 45 years in Wall Street: These years have taught me my most PRECIOUS POSSESSION is TIME. The best use I can make of TIME is to use it to secure KNOWLEDGE which is more valuable in money... I have revealed some of my most valuable rules and secret discoveries, in hopes that others will work and study hard to learn and apply these rules. If they do, speculation and investing will no longer be gambling but will become a PROFITABLE PROFESSION. What a conclusion!!!

At the end, although it is a thin book (slightly more than 100 pages after deducted those charts); yet, it was thick enough in terms of knowledge and the author did passed down tons of wisdoms which are really helpful. After so many years, W.D. Gann remains my idol who is so predominant in my career. As such, although a thin book (in terms of pages), it did enough to nurture my thinking and belief to be a better trader. Having said that, I actually rated this book at high side despite the flaws as mentioned above. Out of 10, I am giving 9 for the erudition provided. The flaws as mentioned although remains as flaws, but it did triggered my mind to think further into it...

As a summary, I love this book as much as I adored the author. In fact, W. D. Gann remains one of my all- time favorite author. He is super human being that leaves tons of wisdoms for traders to explore and I think every true trader should appreciate what he left behind... What a legend!