Four short links: 19 August 2009

Survivor Bias, Algorithmic Trading, S3 Tools, DIY GSM

  1. Business Advice Plagued by Survivor Bias“Burying the other evidence: […] Doesn’t most business advice suffer from this fallacy? Harvard Business School’s famous case studies include only success stories. To paraphrase Peter, what if twenty other coffee shops had the same ideas, same product, and same dedication as Starbucks, but failed? How does that affect what we can learn from Starbucks’s success? (via Hacker News)
  2. A Bestiary of Algorithmic Trading Strategies — insight into the algorithms used by quant traders. Statistical arbitrageurs are a sort of squishy area, similar to arbs, but distinct from them. They find “pieces” of securities which are theoretically equivalent. For example, they may notice a drift between prices of oil companies which should revert to a mean value. This mean reversion should happen if the drift doesn’t have anything to do with actual corporate differences, like one company’s wells catching on fire. What you’re doing here is buying and selling the idea of an oil company, or in other words, a sort of oil company market spread risk. You’re assuming these two companies are statistically the same, and so they’ll revert to some kind of mean when one of the prices move. (via Hacker News)
  3. s3cmd — commandline tool for moving files into and out of Amazon S3.
  4. DIY GSM Network — wow. How to build your own GSM network. Bit by bit, the telcos are getting pressured by the hobbyists. This barbarian is looking forward to the day when the walled gardens are sacked. (via Slashdot)
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  • 1. Survivorship Bias

    A very common problem in most advice. Taleb’s “Fooled By Randomness” goes to an extreme the other way – everything is random. Peters’ book “In Search of Excellence” was shown to be mostly crap a few years later when the performance of the firms he showcased fell badly.

    Most mutual fund managers are selected this way. I am reminded however, that that was the thinking about Warren Buffett ~ 1989 – yet he showed continued above market success for the next 20 years, giving the lie to the assumption his skills were not that good.

    You can see how bad most CEOs are when they are forced to take on a second or third company after the success of their first which brought them to prominence. Most never achieve much again, indicating that their reputations were vastly overblown.

    2. A Bestiary of Algorithmic Trading Strategies

    Arbitrageurs, Statistical Arbitrageurs and hedgers are really closer than suggested – all do much the same thing in reality, although they may use different instruments. They all base their approach on mispricing of an instrument against its equivalent.

    For example – program trading is underlying stocks vs its index, hedging might be one basket of stocks vs an equivalent, or perhaps oil companies vs oil futures. Classic arbs used to bet on the likelihood that a company that was rumored to be “in play” actually would be taken over.

    While some of these ideas would be nice to do on the web, in practice these openings last for very short periods of time. Almost certainly the arbitrage opportunity would close before you got to execute a trade.

  • I always enjoy learning what other people think about Amazon Web Services and how they use them. Check out my very own tool CloudBerry Explorer that helps to
    manage S3 on Windows . It is a freeware.

  • Best four links I’ve seen on O’Reilly Radar in ages. Thanks!