Things are seldom what they seem. Skim milk masquerades as cream (Gilbert and Sullivan, H.M.S. Pinafore)
Not earnings, nor dividends, nor risk, nor gloom of high interest rates stay the chartists from their assigned task : studying the price movements of stocks. Such single-minded devotion to numbers has somehow yielded the most colorful theories and has produced much of the folk language of Wall Street:
“Hold the winners, sell the losers.”
“Switch into the strong stocks.”
“Sell this issue, it’s acting poorly.”
“Don’t fight the tape.”
All are popular prescriptions of technical analysts as they cheerfully collect their brokerage fees for churning your account.
Technical analysts build their strategies upon dreams of castles in the air and expect their tools to tell them which castle is being built and how to get in on the ground floor. The question is: Do they work?
Holes in Their Shoes and Ambiguity in Their Forecasts
University professors are sometimes asked by their students, “If you’re so smart, why aren’t you rich?” The question usually rankles professors, who think of themselves as passing up worldly riches to engage in such an obviously socially useful occupation as teaching. The same question might more appropriately be addressed to technicians. For, after all, the whole point of technical analysis is to make money, and one would reasonably expect that those who preach it should practice it successfully in their own investments.
Toronto CN Tower. Photo by Elena
On close examination, technicians are often seen with holes in their shoes and frayed shirt collars. I, personally, have never known a successful technician, but I have seen the wrecks of several unsuccessful ones (this os, of course, in terms of following their own technical advice. Commissions from urging customers to act on their recommendations are very lucrative.) Curiously, however, the broke technician is never apologetic about his method. If anything, he is more enthusiastic than ever. If you commit the social error of asking him why he is broke, he will tell you quite ingeniously that he made the all-too-human error of not believing his own charts. To my great embarrassment, I once chocked conspicuously at the dinner table of a chartist friend of mine when he made such a comment. I have since made it a rule never to eat with a chartist. It’s bad for digestion.
When Joseph Granville, probably the best known and most followed chartist of the early 1980s, was asked how his “foolproof” system had led him to make some egregious errors during the 1970s, he answered calmly that he was “on drugs” during that period and simply had not paid proper attention to his charts. The “drug” in his case was golf and Granville was convinced that his joining “golfers anonymous” had made him a born-again savior. He believed that he would never again, for the rest of his life, “make a serious mistake on the stock market.” When asked why he didn’t simply use his system to play the market himself and thereby make a fortune, he exclaimed that his mission in life was to enrich others, not himself: “Everyone I touch I make rich.” (Granville predicted not only stock tremors, but earth tremors as well. In 1980, he predicted that Los Angeles would be destroyed in May 1981 by an earthquake measuring 8.3 or more on the Richter scale).
While technicians might not get rich following their own advice, their store of words is precious indeed. Consider this advice offered by one technical service:
The market’s rise after a period of reaccumulation is a bullish sign. Nevertheless, fulcrum characteristics are not yet clearly present and a resistance area exists 40 points higher in the Dow, so it is clearly premature to say the next leg of the bull market is up. If, in the coming weeks, a test of the lows holds and the market beaks out of its flag, a further rise would be indicated. Should the lows be violated, a continuation of the intermediate term downtrend is called for. In view of the current situation, it is a distinct possibility that traders will sit in the wings awaiting a clearer delineation of the trend and the market will move in a narrow trading range.
If you ask me exactly what all this means, I’m afraid I cannot tell you, but I think the technician probably had the following in mind: “If the market does not go up or go down, it will remain unchanged.” Even the weather forecaster can do better than that.
Obviously, I’m biased against the chartist. This is not only a personal predilection but a professional one as well. Technical analysis is anathema to the academic world. We love to pick on it. Our bullying tactics are prompted by two considerations: 1) The method is patently false and 2) it’s easy to pick on. And while it may seem a bit unfair to pick on such a sorry target, just remember: It’s your money we are trying to save.
While the advent of the large-scale electronic computer may have enhanced the standing of the technician for a time, it has ultimately proved to be his undoing. Jus as fast as the technician creates charts to show where the market is going, the academic gets busy constructing charts showing where the technician has been. Since it’s so easy to test all the technical trading rules on the computer, it has become a favorite pastime for academics to see if they really work.
Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.
Created as an experiment by the time-traveling goddess Pallas Athene, the Just City is a planned community, populated by more than ten thousand children and a few hundred adult teachers from all eras of history, along with some handy robots from the far human future, all set down together on a Mediterranean island in the distant past.
The student Simmea was born an Gyptian farmer's daughter sometime between A.D. 500 and 1000. She is a brilliant child, eager for knowledge, ready to strive to be her best self. The teacher Maia was once Ethel, a young Victorian lady of much learning and few prospects. In an unguarded moment on a trip to Rome, she prayed to Pallas Athene – and, in an instant, found herself in the Just City with grey-eyed Athene standing unmistakably before her.
Meanwhile, Athene's brother Apollo – stunned by the realization that there are things mortals understand better than he does – has arranged to live a human life. Now one of the city's children, he conceals his true identity from his peers. For this lifetime, he is prone to all the troubles of being human,.
Then, a few years on, Sokrates appears in the city – the same Sokrates recorded by Plato himself, asking all the troublesome questions you would expect. What happens next is a story only the brilliant Jo Walton could tell – a story of gods and humans and the surprising things they have to learn from one another.
The just city. Photo by Elena.
Simmea
One morning Kebes and I went from breakfast to follow Sokrates around the city as we often did. We found him questioning a worker planting bulbs outside the temple of Demeter. “Do you like your work? Do you feel a sense of satisfaction doing it? Are there some jobs you enjoy more than others?”
“I don't know why you keep doing that when you know they're not going to answer,” Kebes said.
“I don't know that,” Sokrates said. “Joy to you, Kebes, joy to you Simmea! I know they haven't answered yet, but I don't know whether they might answer in the future. I don't even have an opinion on the subject.>
“Everyone knows they're tools,” Kebeb said.
“They're not like tools,” Sokrates said. “They're self-propelled and to a certain extent self-willed. That one is making decisions about where to space the bulbs, precise and careful decisions. Those are going in a row, look, and then that one at an angle. It's deliberate, not random. It may be a clever tool, but it may have self-will, and if it has self—will and desires, then it would be very interesting to talk to.”
“A tree would be interesting to talk to - “ Kebes began, but Sokrates interrupted.
“Oh, yes, wouldn't it!” We laughed and followed him on.
A few months later, early in Gamelion, Kebes, and I were walking along with Sokrates debating one morning when we happened to come back to the place outside the temple of Demeter where the worker had been planting bulbs when Sorkates asked it questions. A set of early crocuses had come up, deep purple with gold hearts. They were arranged in an odd pattern, two straight lines connected by a diagonal and then a circle, Sokrates glanced at them. “Spring after winter is always a joy to the heart,” he said, though he never seemed to feel the cold.
Kebes frowned at the. “It's almost as if – no. I'm being silly.”
Chapter 1: Reality.Everything disappears. Disappears without leaving a trace. That is the true essence of reality. (Anelina de Piola, Argentinian writer).
1 – 1. Mary and Vadim
1 – 2. Vadim and Gleb
3. Walk
4. Vadim and Viktor
5. The Beach
6. The Meeting
7. The Beach (continued)
Prologue 1. The Ocean
The Oasis was bound for La Habana, two days out of Colon, when the storm began. Few of the passengers got on the deck to watch the tumultuous sea. But George, who’d paid all his savings for the cruise, wanted Nadia to understand he was a man with courage.
Yes, he’d told her this morning while they stood near the lifeboats and watched the waves, I wouldn’t miss it. And when Nadia had pointed out that the storm would be too dangerous to stay on the deck, he’d added smoothly that it wasn’t quite the same to peer through the window…
She had hinted she’d like to join him. Nadia had been beautiful in the starlight, and George’s heart had pumped ferociously, bringing back memories of his thirties… a time of passion and romance…
The ocean had grown rough. The wind was picking up. George stood by the door sipping hot coffee and wondering what was keeping Nadia.
The steward approached George, holding a bottle of red wine and a glass. He strolled casually over. George became aware suddenly the steward had asked a question. “I’m sorry,” George said. “My mind was elsewhere”.
“Wonderful thing, nature, sir,” said the steward. “Very nice”. And he left, living the bottle and the glass.
Nadia was now half an hour late. But she had a seven-year-old daughter to take care of, so there was a degree of unpredictability in any rendezvous.
…One hour or so later, the storm ended. Nadia didn’t show up, and the Oasis ploughed through a sea that remained unsettled and grey. Wandering the decks, George saw Nadia and her daughter at a dining table with several others. She was deep in an animated conversation with a rather young man. George lingered for a moment, but Nadia never looked up, her eyes focused on the partner. It was as if a stranded bullet flew across the ocean and touched the heart.
George clumsily climbed the railing, stood for half a minute just trying to remember something, didn’t succeed and stepped forward. He had the time to wonder if the water was too cold… Then he died.
Secret Life. Photo by Elena.
Prologue 2. Acquaintance.
He had always been afraid of his own memories before he met Mary. Not because life with her was peaceful, tender and without problems. No, of course not.
But it is with Mary that he learned to enjoy life and be in awe of its wonders. And now, looking at Mary sleeping, at her dark brown hair, with grey hair touchingly covered with layers of hair dye, he realized just how much of his own existence depended on this woman.
She was the only witness of his presence in the world, the only proof that he really was born, and after his birth continued living; that he continued living despite feeling that he was a small, dry, taken a bite of and mouldy piece of bread in a dump of leftovers and stumps covering the planet; a dump that no one cares about.
Without her, he felt he was just a lining easily covered by primer, a cold and meaningless stain. Mary was his only source of warmth. And he knew that if Mary were to disappear, he would stop his existence as a sentient being and a person, and become a working robot, a machine, a mechanical part. Losing Mary meant losing his soul and any feelings he had whatsoever.
Even now, realizing the necessity to involve Mary in a frightening scheme, he could not unravel the reasons for his tenderness. As he went deeper into self-analysis, attempting to understand said reasons, he tried (and feared) to see that the real reason was his own selfishness - the desire to possess an ideal woman, for example. However, he had to be honest with himself that his heart carried no other reason than a tremendously strong desire to protect Mary from all the unfortunate events of this world.
To cheat on Mary or to betray her - was physically impossible. And he did not mean extramarital affairs - such games he did not take seriously. But to harm Mary, to cheat her, to commit betrayal… That was impossible, it went beyond understanding. That’s why he had to find a way out, without giving up and deciding against surrendering.
And he understood, that Mary shared his feelings: Mary could not betray him either. She likewise was unable to even think that he may betray her.
1 – 1. Mary and Vadim
Portugal, South shore. March 7, 2004.
One o’clock in the morning. Our charter flight arrived late. It’s chilly, dark, uncomfortable.
A small line for customs goes by fast, the Portuguese care a lot about tourists.
A young man holding a sign is our guide. We head towards him.
The young man spends half an hour looking for spring vacationers, who no longer think straight after waiting two hours for the flight to leave Moscow and another four hours spent in flight. Average class, average age, average prices, average hassles…
We stand in the silence of the night, smoking. Cigarette twinkling, striking street lamps, stars.
The bus finally leaves, first struggling to leave the airport and then picking up speed.
We disembark in Falesia, where a three-star hotel, Alfamar, has been booked – a big hotel with a central building, dozens of bungalows and a three-storey building nearby – for the poor.
– Tired?
– Somewhat. You’re tired too, yes?
I try to show tenderness. And I know that it will not work. I just don’t know how to show tenderness. But Mary will not complain about my coldness. Never. Does it hurt her to think that I’m indifferent to her tiredness, worries and unnecessary pursuits? I don’t know. Mary is infinitely patient.
As usual, I feel uneasy when being cared for. And as per usual, I fail at showing her that she alone is important to me in this life.
Sakura in spring. Photo by Elena.
***
Registration at the hotel. On the line “number of guests” I write in myself and put a plus – “and spouse”. I get the keys. The concierge explains, mostly through hand gestures, how to get to the building nearby – the one for the poor.
I carry both bags. No carriers here. Tiny Mary minces next to me. We both keep silent. Some three minutes later we come to a three-storey house and enter the lobby.
Nobody. Silence. In the center of the building there is a wide empty space reaching the glass roof. The atrium. The room doors are all around the walls and exit onto balconies. At the entrance – if you raise your head – you can see all the doors, entering and exiting patrons.
We go up to the third floor…
A stove, a fridge, two single beds. A table, a couple of chairs. Plates, forks, spoons, knives. I get out on the balcony and find another table and plastic chairs.
While Mary sets up her womanly belongings in the bathroom, I smoke a cigarette.
– Are you going to use the bathroom? Because I want to take a shower, if that’s ok with you…
Mary never orders, never insists. Her questions are always soft-spoken: “do you need to take a bath?” “would you like to have lunch?”… Sometimes followed by a brief explanation “because I want to take a shower” or “because lunch is getting cold, it will not taste as good”.
No requests. Ever. Only soft-spoken clarifications. That’s why I always give into her desires. To do what she wants makes me happy. And has made me happy for many years.
Sometimes Mary jokes: The best quality in a woman is submission to her husband! At times it seems to me that she actually really believes that.
– Yes, in a moment. I’ll just finish my cigarette and occupy the bathroom for three minutes at most.
***
… In twelve years we had three arguments. We didn’t really fight, but were hostile to each other. More precisely, I was hostile, without any reason, and Mary cried as a response. Then, I felt horrible, feeling a lump of sadness in my throat and asked for forgiveness. A half an hour later the argument was forgotten. Without reminders, without remembering the past, without reproach.
– So quiet here, right?
Mary nods silently, looking into the darkness. Perhaps she is trying to see the landscape. But the moon is invisible behind the clouds. We are on the third floor, but we don’t feel the height. Precisely, because it is pitch black outside.
– Are you unhappy about anything? Is something wrong?
– No-no. I’m just tired. You know, I’m very happy that we made it here…
I want to hold her close, hug her, kiss her straight and long hair. But I never did that and so such tenderness would look strange. Mary knows I’m a hardened person. I don’t like to show my feelings, I don’t like sweet words, I don’t like affection. To Mary, my dryness is almost my only flaw – at least that’s what she says. But she made peace with that flaw a long time ago. She also thinks that I’m too skinny, she likes the big boned type, but there’s nothing I can do about that, while I’m on the job I cannot let myself go.
– And if you explain our plans for the weeks to come, it would be wonderful!
And once again, there is no question, simply the expression of a desire: If you decide to explain what we’re going to do – good. If not, it’s no big deal. But an explanation would be appreciated, if possible.
– We’ll spend three days here, like I told you… Maybe, five days…
– Yes, I remember, and then?
– If we get bored, we’ll go to Faro, it is a real town after all… If we like it here, we’ll spend another week here. Do you agree?
– And after that?
– We’ll relax, tan, take walks in the town consume green wine and local cheeses… Fortunately, even in March it’s warm and sunny here…
– And if we get bored?
I shrug:
– If we get bored, we’ll go to Lisbon. There, we will not get bored.
– Really? Is Lisbon such an interesting city?
I shrug again.
– You’ll see. Don’t worry, the vacation will be a success.
– Ok. Since you are so sure. And me, I’m going to take a bath. I’ll soak for about half an hour. Go to sleep, don’t wait up. There is coffee, cream and sugar for tomorrow’s morning. After that we could go eat somewhere…
– There’s a store nearby, it opens early, maybe I’ll run over there and buy you some yogourt while you sleep?
– Are you sure the store is open?
– Yes, of course.
– I didn’t notice any store.
– It wasn’t on our way. I saw it on a map, in the lobby of the hotel.
– I see. Ok, I’m going for my bath. I swear I’m very happy. A week on the beach and then two weeks in Lisbon, what could be better.
She smiles, a tired yet sincere smile. And then she goes to the bathtub, she locks the door. Mary has a harmless habit – to consistently lock all the lockable doors.
About the store with yogourts I might have made a mistake. I just wanted to somehow show Mary that I care about her. Even in a small detail such as buying the compulsory morning yogourt. Even after twelve years of living together.
But I made a mistake saying that. Mary was surprised how I knew about the store. And I still cannot explain that it’s not my first time here. And that the hotel, the building, the floor, I chose not randomly, but after careful analysis. And that she, Mary – is my only weakness, the only reason I make mistakes now and then. Few mistakes, unimportant ones – like this one with the store, but still, mistakes.
Tomorrow I’ll try to explain to Mary that all our vacation plans are lies. And that we won’t get any rest. Because in no later than three days I will be murdered.
Old Truths. Photo by Elena.
1 - 2. Vadim and Gleb
Moscow. December 12, 1991.
– Why me, comrade colonel?
– Let’s refrain from stupid questions.
– It is not a stupid question. I need to know which criteria were used to choose precisely me.
– Languages. Interest in politics. Indifference to luxury. Diligence. Disregard of others.
– In that order?
– No. In oder of recall. I may be forgetting something.
– “Disregard of others”? What are you talking about? I never noticed anything like that about myself.
– What does it have to do with you? What’s important is that some intelligent people noticed…
He’s joking. The no-nonsense part of conversation is over? No, apparently, it has not even begun.
– Don’t rush major. Precisely “do not rush”. In a year you’ll finish the file – that’s ok. I don’t think it will be needed before that. All good things in moderation. Beginning with a scheme of bugs in the embassy, then minimization of the intelligence network, and then they’ll get even there.
– It takes a day to transmit the schemes of the bugs, and the intelligence network can me minimized simultaneously. And the brass will want to shine sooner rather than later.
– Yes, of course but they won’t need this asset for about a year. No complications in sight, at the contrary. Even after, in the next three years they will be getting and stealing from “material help”, divide assets, creating connections. But later, when they realize that they have to be proud of something, they’ll need to cover their backends and they understand that it can’t be achieved with slogans. Then, they’ll need the file.
– Comrade colonel, I understand that the Russian public could not care less. And I also understand that the Americans would be interested in getting the file. But, then what? They’ll applaud in the hallways of the Senate, publish a couple of articles in history journals. You can’t create a lobby with that.
Silence. A long silence. Gleb lights a cigarette. He is looking above my head. He rubs his chin.
– Lobby… You don’t understand… And I don’t understand. You’ll get it once you start working. The preparation of the papers for transmission – is the main and official part of the deed. But there is something there. And that’s what I don’t understand. And I will never understand. I don’t need that. I don’t want to. It is your concern. Now it is yours.
– The transmission will be obstructed? That’s what you mean?
– You’re not a child. First, patriotic guardians will start a fuss, in the sense, that why transmit archives, how then you bring Russia to its knees. It’s the same thing with bugs in the embassy, no one needs them, the Americans are well aware of all that, but the outcry over the betrayal of Bakatin has started and is getting louder. The outcry is based either on plain stupidity or taking advantage of patriotism. Second, someone will definitely think that we’re selling ourselves short. Third, someone will be upset that nothing was shared with them.
– You’re explaining me this as if I were a child.
– Don’t take it personal. In the last couple of months, I got used to the fact that I have to spoon-feed to everyone what democracy is and how to work now.
– So what kind of obstacles, aside from the traditional ones, should I expect?
Gleb is smoking. Silence again. A look on the sprinkling rain outside. A light rain, drizzling. It will be over soon.
– I repeat. There’s something there. Something which I do not understand. Something really strange. I don’t want to get to the bottom of this. You’ll find the answer yourself. If you want to. I am positive that no one from the brass understands the risks. To them, it is a usual situation: To strengthen the mutually advantageous relationship with the United States of America – Russia transmits Soviet archives in regards of Kennedy’s assassination in 1963.
Gleb puts out his cigarette. And lights another one right away. I don’t yet know that his daughter smokes as much as him. I’m still unacquainted with her.
– But, Vadim, it’s been three months since I started digging up archives: political party ones, ours, TASS, the KGB, it’s ok since they’re still shaken by the government overthrow; they have other things to do than forbidding, they’re glad they’re still alive. There’s something in the affair… I’m not talking about the conclusions from the investigation on how many assassins there were and where they shot from. At first, I thought that digging up archives would be enough, to file correctly, to sort them out, to make them look heavier, make them look good, add a dozen exclamation marks and send them to Washington, hoping for the best. But it took me three weeks to understand the most important part – there are oddities.
Vadim, I don’t know what this is about, nor what it all means. But the Americans are hiding something. Perhaps Castro is indeed involved in the assassination of Kennedy. Perhaps behind the curtains was Khrushchev. Perhaps we hypnotized the assassin and made him do it. Perhaps, De Gaulle organized it on the advice of Mao Zedong. I repeat, I don’t understand what really happened. But the Americans are hiding what they so well know. You were born an analyst, Vadim. I didn’t cite this quality answering your question “Why me?”. But that’s the main reason.
I understand what Gleb Sergeyivich is talking about. A good analyst, – is a person who without leaving the office, studying available, almost unavailable and unavailable sources (but after thoroughly studying them) will reach conclusions, which would otherwise take incomparably more time, and sometimes a great deal of effort and resources.
Raising Sun. Photo by Elena.
***
Inside the hotel’s foyer two tough gangsters hid behind the sagging door. Each in his own shadowy corner, they pressed against the crumbling whitewashed walls, keeping an eye to the cracks.
It figures he would show up now, said the first one. I was just going to take a break.
The other snorted: A break? What do you need a break for? We’ve just been standing here all morning long.
I need to go to the bathroom, the first gangster said.
Well, you should have planned ahead, his partner answered. This is the most important part of the plan, where we make the switch. Now be quiet. He’s getting out of the cab.
When Smith remained unconvinced about the suitability of the hotel, bolo finally said’ “Well, if you don’t like it, you can always go and complain to the management. Maybe they’ll clean the place up a bit”.
“In fact, I will talk to the management”, Smith said. “I don’t like to complain, since this was a free trip, but I’m sure Maria, the contest administrator, would like to know about this.”
Smith stuffed his paperback into the pocket of his sport coat and climbed out of the taxi. He fumbled for money to pay the driver, but Bolo just waved and puttered on down the alley. “My congratulations on winning the contest,” he called. “No charge.”
Smith gripped his black suitcase and trudged up the sidewalk, but the hotel didn’t look and better when he got closer. As he watched, one of the terra-cota roof tiles, apparently dislodged by an extremely large tarantula, tumbled down the side of the building to smash on the street.
“They ought to be ashamed of themselves.” Smith frowned, craning his neck to look up at the windows of the other rooms. He set the suitcase down at his feet.
Knocking at the front door but hearing no answer, Smith pushed open the creaking door. He walked in, blinking to adjust his focus in the sudden interior shadows. He glanced around, but could see nothing but a narrow landing and coat hooks nailed to old wooden paneling. Bright smudges of sunlight splashed through the windows in a steep stairwell in front of him. All the rooms seemed to be upstairs.
“Hello?” he said. His voice echoed back at him. Anxious to get on with his prize vacation, he marched up the groaning stairs, making no attempt to be quiet. “Anybody here?” He heard skittering bugs, but no other sound.
Behind him, on tiptoe, the two hoods emerged from their respective hiding places and stalked after him. They adjusted sturdy ropes looped around clips at their waists; in each hand they carried strips of rags, convenient for gags or blindfolds. The fist man walked in a strange scissorlike fashion, trying to keep his legs crossed and his full bladder under control. The second man hovered close to him, hiding in his partner’s shadow.
“Is this the Hotel Grande?” Smith shouted again. “Where’s the lobby?” He stopped at a landing next to a grime-streaked window. The view looked out onto an alley piled with rusted automobiles stripped of parts – nothing scenic at all.
As Smith stood at a loss, one hood crept up behind him and looped his ragged strip of cloth around Smith’s face in an attempt to jam it into his mouth.
Smith grabbed the cloth and yanked it out of the hood’s hand. Hey. In a brief struggle, the first hood scrabbled to snatch the cloth back.
Smith’s naval commando training – honed and refined by living and working for years in the mugger-rich suburbs of New York – suddenly came into play.
He expertly grasped the hood’s wrist, hunched and elbowed him in the stomach. A sudden dark wet spot blossomed at the man’s crotch. Smith turned backward, spun around and hurled him through the window.
The second thug charged up the steps to join the fray. As he sailed through the shattering glass, the first hood’s heels struck the second thug in the chin and knocked him back down the stairs. The second hood thumped and rolled and bounced down from landing to landing picking up speed.
Smith watched him arms crossed over his chest. He sniffed in annoyance. I could tell this wasn’t a first-class hotel.
To many people this appears to be arrant nonsense. Even the most casual reader of the financial pages can easily spot patterns in the market.
The persistence of the belief in repetitive patterns in the stock market is due to statistical illusion. To illustrate, let me describe an experiment in which I recently asked my students to participate. The students were asked to construct a norm stock charts showing the movements of a hypothetical stock initially selling at $50 per share. For each successive trading day, the closing stock price would be determined by the flip of a fair coin. If the toss was a head, the students assumed that the stock closed 1/2 point higher than the preceding close. If the flip was a tail, the price was assumed to be down by 1/2. The chart derived from random coin tossing looks remarkably like a normal stock price chart and even appears to display cycles. Of course, the pronounced “cycles” that we seem to observe in coin tossing do not occur at regular intervals as true cycles do, but neither do the ups and downs in the stock market.
It is this lack of regularity that is crucial. The “cycles” in the stock charts are no more true cycles than the runs of luck or misfortune of the ordinary gambler. And the fact that stocks seem to be in an uptrend, which looks just like the upward move in some earlier period, provides no useful information on the dependability or duration of the current uptrend. Yes, history does tend to repeat itself in the stock market, but in an infinitely surprising variety of ways that confound any attempts to profit from a knowledge of past price patterns.
In other simulated stock charts derived through student coin tossing, there were head-and-shoulders formations, triple tops and bottoms, and other more esoteric chart patterns. One of the charts showed a beautiful upward breakout from an inverted head and shoulders (a very bullish formation). I showed it a chartist friend of mine who practically jumped out of his skin. “What is this company?” he exclaimed. “We’ve got to buy immediately. This pattern’s classic. There’s no question the stock will be up 15 points next week.” He did not respond kindly to me when I told him the chart had been produced by flipping a coin. Chartists have no sense of humor. I got my comeuppance when Business Week hired a technician who was adept at hatchet work, to review the first edition of this book.
Just What Exactly Is a Random Walk? Photo by Elena
My students used a completely random process to produce their stock charts. With each toss, as long as the coins used were fair, there was a 50 percent chance of heads, implying an upward move in the price of the stock, and a 50 percent chance of tails and a downward move. Even if they flip ten heads in a row, the chance of getting a head on the next toss is still 50 percent. Mathematicians call a sequence of numbers produced by a random process (such as those on our simulated stock chart) a random walk. The next move on the chart is completely unpredictable on the basis of what has happened before.
To a mathematician, the sequence of numbers recorded on a stock chart behaves no differently from that in the simuated stock charts – with one exception. There is a long-run uptrend growth of earnings and dividends. After adjusting for this trend, there is essentially no difference. The next move in a series of stock prices is unpredictable of past price behavior. No matter what wiggle or wobble the prices have made in the past, tomorrow starts out fifty-fifty. The next price change is no more predictable than the flip of a coin.
Now, in fact, the stock market does not quite measure up to the mathematician’s ideal of the complete independence of present price movements from those in the past. There have been some dependencies found. But any systematic relationships that exist are small that they are not useful for an investor. The brokerage charges involved in trying to take advantage of these dependencies are far greater than any advantage that might be obtained. This is the consistent finding of the academic research on stock prices. Thus, an accurate statement of the “weak” form of the random-walk hypothesis goes as follows:
The history of stock price movements contains no useful information that will enable an investor consistently to outperform a buy-and-hold strategy in managing a portfolio.
In the weak form of the random-walk hypothesis is a valid description of the stock market, then, as Richard Quandt says, “Technical analysis is akin to astrology and every bit as scientific.”
I am not saying that technical strategies never make money. They very often do make profits. The point is rather that a simple “buy-and-hold” strategy (that is, buying a stock or group of stocks and holding on for a long period of time) typically makes as much or more money.
When scientists want to test the efficacy of some new drug they usually run an experiment where two groups of patients are administrated pills – one containing the drug inn question, the other a worthless placebo (a sugar pill). The results of the administration to the two groups are compared and the drug is deemed effective only if the group receiving the drug did better than the group getting the placebo. Obviously, if both groups got better in the same period of time the drug should not be given the credit, even if the patients did recover.
In the stock-market experiments, the placebo with which the technical strategies are compared is the buy-and-hold strategy. Technical schemes often do make profits for their users, but so does a buy-and-hold strategy. Indeed, as we shall see later, a naïve buy-and-hold strategy using a dart-board-selected portfolio has provided investors with an average annual rate of return of approximately 10 percent over the past sixty years. I believe that return will continue at roughly that level for the reminder of the century. Only if technical schemes produce better returns than the market can they be judged effective. To date, none has consistently passed the test.
Devotees of technical analysis may argue with some justification that I have been unfair. The simple tests I have just described do not do justice to the “richness” of technical analysis. Unfortunately for the technician, even some of his more elaborate trading rules have been subjected to scientific testing.
Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc
This Caribbean island offers a lush topography of mountains, rainforests and reef-lined beaches. Many of all-inclusive resorts on this island are clustered in Montego Bay, with its British-colonial architecture, and Negril, known for its diving and snorkeling sites.
Jamaica is famed as the birthplace of reggae music, and its capital Kingston is home to the Bob Marley Museum, dedicated to the famous singer.
Jamaica is a Commonwealth realm, with the Queen or the King of the United Kingdom as head of state. The appointed representative in the country is the Governor-General of Jamaica. Jamaica is a parliamentary constitutional monarchy with legislative power vested in the bicameral Parliament of Jamaica, consisting of an appointed Senate and a directly elected House of Representatives.
All the pictures have been taken by Elena.
Jamaica is the third-most populous Anglophone country in the Americas (after the United States and Canada), and the fourth-most populous country in the Caribbean.
Jamaicans mainly have African ancestry, with significant European, Chinese, Indian, Lebanese, and mixed-race minorities.
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Jamaica has a large diaspora around the world, particularly in Canada, the United Kingdom, and the United States.
Previously inhabited by the indigenous Arawak and Taíno peoples, the island came under Spanish rule following the arrival of Christopher Columbus in 1494.
Jamaica lies about 145 kilometres (90 mi) south of Cuba, and 191 kilometres (119 mi) west of Hispaniola (the island containing the countries of Haiti and the Dominican Republic).
The climate in Jamaica is tropical, with hot and humid weather, although higher inland regions are more temperate. Some regions on the south coast, such as the Liguanea Plain and the Pedro Plains, are relatively dry rain-shadow areas.
Among the variety of terrestrial, aquatic and marine ecosystems are dry and wet limestone forests, rainforest, riparian woodland, wetlands, caves, rivers, seagrass beds and coral reefs.
Jamaica lies in the hurricane belt of the Atlantic Ocean and because of this, the island sometimes suffers significant storm damage.
Among the variety of terrestrial, aquatic and marine ecosystems are dry and wet limestone forests, rainforest, riparian woodland, wetlands, caves, rivers, seagrass beds and coral reefs.
The European settlers cut down the great timber trees for building and ships' supplies, and cleared the plains, savannas, and mountain slopes for intense agricultural cultivation.
Areas of heavy rainfall contain stands of bamboo, ferns, ebony, mahogany, and rosewood. Cactus and similar dry-area plants are found along the south and southwest coastal area.
The Jamaican animal life, typical of the Caribbean, includes highly diversified wildlife with many endemic species found nowhere else on earth. As with other oceanic islands, land mammals are mostly bats.
Tourist attractions include Dunn's River Falls in St. Ann, YS Falls in St. Elizabeth, the Blue Lagoon in Portland, believed to be the crater of an extinct volcano.
