Philosophical Musings

December 23, 2008

Stock Market Prediction Services – Caveat Emptor

Filed under: investing — Elad Kehat @ 10:07 pm

Services that offer to assist investors in predicting the behavior of capital markets always make me lough. The exact nature of the method du jour is not important; be it charting (that has idiotically become mainstream) or the new new thing – tapping into the wisdom of the crowds as captured online (see for example StockMood, and most activity on prediction markets such as AskMarkets). Either way, the subscriber to such a service is unlikely to profit from it.
The reason is not some inherent flaw of the methods used for prediction, but rather a simple human reasoning. I know because I dabbled in an attempt to develop such a method myself (with a little help from my friends). The idea was to mine online investor generated content in search of correlations between some of its properties and future market movements. We were unsuccessful at the time, but I shall not expand more on the details of the attempt, as I have not given up hope entirely – and that (as shall become clear momentarily) is the whole point of this post.
I dubbed our attempt “The Money Printer Project”, since should it have been successful, we would have had a machine in our hands that is equivalent to a (legal) printer of dollar bills. After all, if you develop a method to predict how stock prices will change before they actually do, at a better than random probability, you will most likely making a lot of money using it. (Only most likely because there is also the likelyhood of you ignoring the math and using emotion, thus making stupid mistakes and losing.)
Of course, if your method became known and popular, it will cease to be useful, as others will be able to predict your actions and either preempt you or simply trade against you. You can rely on larger financial institutions, as well as investors bigger than yourself, to have greater resources, access to greater computing power, and the ability to execute trade faster and cheaper than you. There is no for you to win against them, so your game must not be known – you have to be the only player playing that game.
Assuming that anyone intelligent enough to develop such a method also realizes the points above, they would never offer their method to others. The only reason to offer this method is if it doesn’t really work. There are enough gullible investors out there that can be impressed by a sophisticated (yet false) prediction model. It is far easier to succumb to greed than to try and falsify such a model scientifically.
In other words, if someone offers you a system that can help you predict capital markets they are probably lying. If it was indeed successful, they would have used it themselves. If they sell its predictions instead, it is most likely because that is the only way to make money out of it.

December 6, 2008

The Falacy of Online Privacy

Filed under: Uncategorized — Elad Kehat @ 11:40 am

You think that social media is a threat to your privacy? Think again. It’s actually your savior.

Some people still think and act as if they have privacy. They’re wrong.
Scott McNealy called right it back in 1999 when he said: “You have zero privacy anyway, get over it.”

Why was McNealy right, even back in ’99, before the age of MySpace, Facebook or Twitter?
A lot of our actions leave a digital footprint, and have been doing so for many years. Our major life events are recorded by our governments, our shopping habits are recorded by credit card companies, our movements by mobile communications providers, when we walk the streets of London we’re being constantly filmed by numerous video cameras, and of course our online activities are recorded by our ISP and many others. All of that’s been going on since way before we started telling the world about ourselves through various social websites.
The problem with all this data (save the last kind): you have zero control. You don’t know what is being collected exactly (though it would be a safe bet to assume that everything is), you don’t know who collects it, who has access, or what they do with it or will do with it in the future. Nobody warns you in advance that anything you say or do can and will be held against you, but rest assured that at some point it will.
The second problem is that you’re not really aware of all of this collection going on. Most people don’t realize how easy it is, given enough data and cheap processing power, to make connections and inferences about you. Some times you do become aware for a while, get slightly uncomfortable, but soon enough forget the whole thing and go on with your life.

Now the biggest problem is that where we are aware of the issue is exactly the wrong place.
It’s very easy to get worried about privacy with relation to social networks – it’s so in your face. You look at some stranger’s profile on MySpace, and realize that there’s so much there that you’d consider private. You read about someone caught lying by his employer after calling in sick then posting photos of himself partying to Facebook, and the danger becomes clear.
But it’s wrong to worry. The power of social media is that YOU have power. First, you know where you have profiles. Second, you choose how to describe yourself.
True, control is not absolute – other people can post about you too, and you have no control then, but at least you can set up some alerts on your name and make sure you know when they post – you know what data is out there.
Note that I didn’t say you choose what data to reveal. You can’t control that. What you do have some control over is what kind of information is the most prevalent – what comes up first when someone googles your name.
In short, your brand is out there whether you like it or not. Social media gives you the power to curate it and try to affect the way you’re perceived. The most sensible thing to do isn’t to chase privacy. Instead, it is to publish a lot of the things that you want people (and machines) to find about you.

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