Feb 14, 2009: pie in the sky

  • Update
  • Pie in the sky
  • Catching up
  • Future plans
  • Update

    I wanted to give you a brief update on my ~3 years financial journey.

    As you may have noticed, since I started documenting my financial thoughts and applying data-mining and machine learning to the "How to outperform the markets while assuming lower risk" challenge, I have been drifting.

    More precisely, the data I have been watching and models I've been testing, have made me shift gradually to shorter and shorter term strategies. As much as I wanted to be passive and long-term, I simply couldn't argue with the data.

    In the past 3 months or so, I've started working with a friend, Adi, and together we've made what I consider the biggest breakthrough in my investing life. Our results have been put to the test first in models and back-testing, and then in our real portfolios. We have been validating our new approach with every week that passes. January 2009 has been phenomenal for us, and so far, February is shaping up to be at least as good as January was.

    Since I no longer feel it would be prudent to share in detail what we're up to, I'm considering stopping the email updates altogether.

    I may still update the site periodically, but I'm thinking of writing less, and use it mostly to document the results of the new system, which we call 'PIE'. Since my own record must be verified/audited by an independent 3rd party for validity, I plan to move from the abandoned Marketocracy system to a better system which allows me to implement PIE. Marketocracy is a non-starter because the rules don't allow shorting, and their ETF database is not current, among other problems. I hope to be able to publish PIE's results in almost real time (probably with one day delay) on a new 3rd party site.

    What does 'PIE' stand for

    Let's start with the easy part: the 'PI' stands for 'Personal Investing'. The 'E' is great because it can stand for so many things. From the uncomfortably boastful 'Excellence' to the unassuming -- and my favorite -- 'Experimentation'.

    I also like pie because there's "Pie in the sky", the holly grail on which I wrote in the Sept 2008, "Shana Tova" article. I'm now convinced this holly grail is actually possible and within reach: positive returns in each and every month, regardless of what the broad market is doing.. So far, we've been positive every week (6 out of 6), not just every month, while the S&P 500 has been absolutely dismal (down -8.57% in January, and almost -4.81% in the past week), but being conservative, I'd prefer to commit to only "every month".

    Catching up

    I've written a few articles on finance.yendor.com which I didn't email about. The latest 4, if anyone wants to catch up, were:


    I feel we have a great treasure in our hands, and I'm not sure exactly what would be the best course forward. I know what it won't be though. Obviously, managing "other people's money" is the fastest way to increase capital, but I've always felt extremely uncomfortable with the idea of managing other people's money. It is not what I'm looking for. For now, I'm happy just to increase my own capital. Also, I'm not sure how scalable PIE is to large "assets under management" sums. I estimate that at about 100M, we should be hitting a serious wall of "too many trades required to keep up with the performance", and the system may be in need of an overhaul. Then, there's always the possibility that whatever works extremely well today, may not be working as well tomorrow. Even though our system is adaptive and we plan to improve on it further, it may not adapt as fast as necessary to be near optimal or even good enough when new market conditons take shape.

    You can always write to me if you want to learn more, or have better ideas for a business plan.

    As always, this isn't intended as investment advice. It merely reflects my own thinking and actions at the time of writing. In the immortal words of John Maynard Keynes "When the facts change, I change my mind. What do you do, sir?"

    Every investor should make up his own decisions based on his risk tolerance, comfort-zones, convictions, and understanding.

    Any feedback is welcome.

    -- ariel