Why make stories out of noise?

Tyler Durden · 31 January 2011

One of the best books I've read is Fooled by Randomness by Nassim Taleb, where I learnt the difference between noise and information. So to me, variations in SP in a day is noise to me.

But when I turn on the news at 6pm, or read the paper online, it seems like everyday the market is open they make a story to rationalise and explain the movements in the market that day. For example, recently the explained a drop as being due to the Chinese New Year holiday, and now they're using the Egypt unrest story.

Why can't noise be just noise? People buy and sell everyday for various reasons. Why do we have to attribute movement to stories like these? How accurate do you think it is to do this? I mean, when I heard the Chinese New Year story, I thought it was pretty ridiculous that people would be selling their shares just because China would be taking a few days off for the holiday. I mean, really? The market reacts to things like that??

motorway · 31 January 2011

Tyler Durden said:
One of the best books I've read is Fooled by Randomness by Nassim Taleb, where I learnt the difference between noise and information. So to me, variations in SP in a day is noise to me.

But when I turn on the news at 6pm, or read the paper online, it seems like everyday the market is open they make a story to rationalise and explain the movements in the market that day. For example, recently the explained a drop as being due to the Chinese New Year holiday, and now they're using the Egypt unrest story.

Why can't noise be just noise? People buy and sell everyday for various reasons. Why do we have to attribute movement to stories like these? How accurate do you think it is to do this? I mean, when I heard the Chinese New Year story, I thought it was pretty ridiculous that people would be selling their shares just because China would be taking a few days off for the holiday. I mean, really? The market reacts to things like that??

Yes good book he gives a good antidote on pages (in my edition).

164 to 168 inclusive

Motorway

Garpal Gumnut · 31 January 2011

Nassim is one smart fellow.

gg

Noddy · 31 January 2011

Tyler Durden said:
One of the best books I've read is Fooled by Randomness by Nassim Taleb, where I learnt the difference between noise and information. So to me, variations in SP in a day is noise to me.

But when I turn on the news at 6pm, or read the paper online, it seems like everyday the market is open they make a story to rationalise and explain the movements in the market that day. For example, recently the explained a drop as being due to the Chinese New Year holiday, and now they're using the Egypt unrest story.

Why can't noise be just noise? People buy and sell everyday for various reasons. Why do we have to attribute movement to stories like these? How accurate do you think it is to do this? I mean, when I heard the Chinese New Year story, I thought it was pretty ridiculous that people would be selling their shares just because China would be taking a few days off for the holiday. I mean, really? The market reacts to things like that??

Agree with you 100%
In the last couple of days I've heard the share market drop blamed on -
Floods levy
Drop on Wall Street
Chinese new year
Spain going broke
Trouble in Egypt etc. etc.
"Obviously the trouble in Eqypt is largely resolved as the market kicked up this afternoon' ??? I don't think so. All the observations border on the ridiculous IMO.

So_Cynical · 31 January 2011

bloomberg.com said:
Shipping traffic through the Suez Canal has remained unaffected by protests in Egypt over the past six days, an official with the waterway’s operator said today.

Thirty-eight ships passed through the canal today carrying 1.5 million tons of cargo, Suez Canal Authority spokesman Mahmoud Abdelwahab said in a telephone interview. That compares with 47 vessels that transited the waterway yesterday, he said.

More than 4 million barrels a day of crude oil, or 4.5 percent of global production, are shipped through the canal or a pipeline that runs adjacent to it, according to New York-based McQuilling Services LLC. The world’s longest man-made waterway is the fastest crossing from the Atlantic Ocean to the Indian Ocean.

http://www.bloomberg.com/news/2011-...-by-egyptian-unrest-canal-authority-says.html

The above and the fear of "freedom" spreading in the region is a valid reason for a 2 to 3% global market fall IMO, genuine political unrest is not noise....Chinese NY...yep that's noise.

Day to day SP movement is only relevant if you want or need to buy/sell on that day....its not unusual for me to hold an open trade or 100 to 200 days or more...what's important is the SP on the day i buy and the day i sell.

ROE · 31 January 2011

isn't everything is noise regardless of what it is until you use that information and buy or short

the GFC crash the market 50%, you didn't buy ..it's noise but if you buy that is valuable information

tothemax6 · 1 February 2011

Tyler Durden said:
One of the best books I've read is Fooled by Randomness by Nassim Taleb, where I learnt the difference between noise and information. So to me, variations in SP in a day is noise to me.

Yeah that exactly the term I have always used - noise. Or perhaps hash, or squiggles. I think a lot of technical analysis is simply reading tea leaves on the bottom of a cup. Sure, there may be some information in the price (sometimes), but I think some people delude themselves on the predictive capacity of drawing lines through the squiggles.
And yes, the 'the All Ords was up/down today on X' is always a good one. A lot of the time they just find some crudely correlated X and say "thats it, X did it". Correlation does not imply causation, as all should know .

sammy84 · 1 February 2011

tothemax6 said:
Yeah that exactly the term I have always used - noise. Or perhaps hash, or squiggles. I think a lot of technical analysis is simply reading tea leaves on the bottom of a cup. Sure, there may be some information in the price (sometimes), but I think some people delude themselves on the predictive capacity of drawing lines through the squiggles.
And yes, the 'the All Ords was up/down today on X' is always a good one. A lot of the time they just find some crudely correlated X and say "thats it, X did it". Correlation does not imply causation, as all should know .

:iamwithst

You obviously have no idea what technical analysis entails or Nasem's book is about.

KurwaJegoMac · 1 February 2011

Noddy said:
Agree with you 100%
In the last couple of days I've heard the share market drop blamed on -
Floods levy
Drop on Wall Street
Chinese new year
Spain going broke
Trouble in Egypt etc. etc.
"Obviously the trouble in Eqypt is largely resolved as the market kicked up this afternoon' ??? I don't think so. All the observations border on the ridiculous IMO.

Some portion of a market drop can be attributed to some of those things, but not always. Lots of those events will have impacts on supply and demand for resources, consumables, services, etc so major events such as those can influence a move but are generally not the cause (there are exceptions of course)

Overall, the reason we hear these statements all the time is that at the end of the day, the uneducated and naive investor wants a reason to blame for their stocks losing value. They don't want to hear that they made a bad choice - they want to hear that the market dropped because of some event in some far off distant land. That way they can feel happy and content that 'they were right' and they only lost out because of events outside of their control.

Once you've been investing for a while you realise that most of the stories are in fact 'noise' and you begin to focus on information that does impact stocks (supply, demand, fundamentals, price action, etc)

cutz · 1 February 2011

Noise is just a filler between the ad breaks, some noise is the ad.

tothemax6 · 2 February 2011

sammy84 said:
:iamwithst

You obviously have no idea what technical analysis entails or Nasem's book is about.

So technical analysis is not drawing lines through squiggles? Or giving fancy names to types of squiggles like 'double inverted barbecue' or 'magic shoe formation' etc and then believing one has gained superior insight into the future price?

sammy84 · 2 February 2011

tothemax6 said:
So technical analysis is not drawing lines through squiggles? Or giving fancy names to types of squiggles like 'double inverted barbecue' or 'magic shoe formation' etc and then believing one has gained superior insight into the future price?

I can't help but bite a little. It is not about superior insight. It is about finding a method which delivers a positive expectancy. Won't always be right and certainly doesn't provide superior insight. Still makes money and that is what is important. I'll leave it at that, as I can tell from your response you won't actually absorb anything that I have to say anyway.

Sean K · 3 February 2011

9/11 was noise and a story.

tothemax6 · 3 February 2011

sammy84 said:
I can't help but bite a little. It is not about superior insight. It is about finding a method which delivers a positive expectancy. Won't always be right and certainly doesn't provide superior insight. Still makes money and that is what is important. I'll leave it at that, as I can tell from your response you won't actually absorb anything that I have to say anyway.

I give every opinion consideration .
Sure if it produces a positive expectancy, that's all that counts. However I would say that a man who wins a 50/50 game 60% of the time has not created positive expectancy - he is just lucky.

motorway · 3 February 2011

tothemax6 said:
So technical analysis is not drawing lines through squiggles? Or giving fancy names to types of squiggles like 'double inverted barbecue' or 'magic shoe formation' etc and then believing one has gained superior insight into the future price?

No what ever that is is something else..

As I said a good TA description is found in the book

Yes good book he gives a good antidote on pages (in my edition).

164 to 168 inclusive

Motorway

TA is an antidote to Noise ( or should be )
Good TA is so you do not get fooled by randomness.

Motorway

grandia3 · 3 February 2011

spare these people
they work hard for a living

prawn_86 · 21 February 2011

Watching some clown on Skybusiness right now. Can see he is blatantly making up reasons for why stocks may have moved down.

It must be hard to come up with a new reason everyday...

ChaoSI · 21 February 2011

just for interest sake, psychologically speaking, humans try and attribute motivation and causes to everything. Because ultimate humans try and understand and explain the world around them and we do it everyday through scripts, assumptions and schemas.
So when we see something happen we try and make sense of it by creating a theory, and because we usually go with what we come up with first a lot of the time the theory is without proof and scientifically (or statistically) not significant.

so um... yeah
here's

burglar · 21 February 2011

prawn_86 said:
Watching some clown on Skybusiness right now. Can see he is blatantly making up reasons for why stocks may have moved down.

It must be hard to come up with a new reason everyday...

Don't keep us in suspense!

GumbyLearner · 21 February 2011

ChaoSI said:
just for interest sake, psychologically speaking, humans try and attribute motivation and causes to everything. Because ultimate humans try and understand and explain the world around them and we do it everyday through scripts, assumptions and schemas.
So when we see something happen we try and make sense of it by creating a theory, and because we usually go with what we come up with first a lot of the time the theory is without proof and scientifically (or statistically) not significant.

so um... yeah
here's

Do you mean something like this ChaoSI?

Why make stories out of noise?

Tyler Durden

motorway

Garpal Gumnut

Ross Island Hotel

Noddy

So_Cynical

The Contrarian Averager

ROE

tothemax6

sammy84

KurwaJegoMac

cutz

tothemax6

sammy84

Sean K

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motorway

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