[Financial Freedom] We have re-recognized "forecasting"!
——Previous review——
Can you accurately predict the stock price?
Many times, the quality of the problem determines the quality of the answer. It's not a shame to ask questions, but if you don't ask well, "not shame" is actually in vain.
First of all, what exactly is the word "accurate" to be accurate? So, if it is a question and answer session, it is probably like this:
A: Excuse me, can the change in stock price be accurately predicted?
B: Please definition "accurate" in advance.
Secondly, regarding "whether", most of the problems in this world maybe simple, but it is not as simple as using "yes" and "no" to answer them directly... So such problems run out, the most direct and correct the answer is: "not necessarily", or "don't know"... Because "yes" or "no" are both wrong and inaccurate.
Finally, there is still a limit to "predicting" - "Who will predict?" The undeniable fact is that the difference in predictive power between people is huge, and this is one; second, if information integrity determines the quality of prediction, then there is no denying that some people integrity of the information it possesses is many orders of magnitude higher.
A brief analysis of the above three points, in a sense, can be regarded as the most basic example of "thinking" - in the eyes of many people who are not good at thinking "cause trouble?”, obviously, other people don’t think so, they just get used to it.
Just like this week, there are readers leave messages: simple things rely on intuition, and complex things depend on thinking.
But the question is, can you answer this question first:
What is "simple"? What is "complex"?
The arithmetic problem of addition, subtraction, multiplication and division is not complicated for adults, but for children, it may be a big problem.
So the complexity of one thing depends not only on the matter itself, but also on who is going to do it.
Some things are simple for "God", such as:
Forecast short-term stock price volatility.
When we use probabilistic knowledge to understand the real difficulty of this matter, we know that some things are not within our capabilities, and avoiding them early is obviously a wise choice.
Let us look at another question:
The current Google stock price is $xxx. Excuse me, if you predict that the price will rise after five minutes? Still falling? So, what is your prediction accuracy?
Whether you are based on feelings or based on some theory you have read in the past (such as "probability theory", such as "Random Walk Theory" or something else), it is likely that no matter who you are, the accuracy of the prediction is probably It is infinitely close to 1/2.
What does 1/2 mean? 1/2 means "in fact, you can’t guess at all", predicting whether it is correct or not depends on luck.
Please note:
It does make sense to predict more than 1/2, otherwise it's better to throw a coin to decide.
If the predicted high accuracy to a certain extent, such as more than 60%, then that is to say, 10 times, there are at least six times to predict accurately, then you go to continuous forecasting, not only to forecast, but also with the money to "bet" - In the long run, you will definitely make money and make a lot of money... You should be able to react. In fact, the accuracy rate does not need to be as high as 99%, even if it is definitely above 50%, such as 51%, then "in the long run It must also be very profitable."
In fact, for the judgment that the price after 5 minutes is higher than the current one or lower than the current one, it is almost certain that no matter what method strategy you use, in the long run, your prediction accuracy can only be 1/2 - In other words, no matter how hard you try, that prediction is meaningless. Moreover, this conclusion has actually been verified in practice for an infinite number of times.
This is a bit counterintuitive, just as "the result of your coin flip has been positive for 32 consecutive times. However, the next time you throw a coin, the positive probability is still 1/2 (because the coin flip is an 'independent event') be counterintuitive.
If you read some articles or books related to cognitive bias, you will find that our daily life hides a lot of cognitive bias.
For example, for people without probabilistic common sense, there is no way to understand why after 32 occurrences, the probability of a positive for the 33rd coin flipping is 1/2.
It is the cognitive differences in these common sense that it is doomed that some people was gambling, while others was invest.
And the longer the time, the greater gap between each other.
So this is why I encourage everyone to learn a lot of basic knowledge, even the "no need" knowledge in the outside world. In order to enhance everyone's understanding of the world.
Only by clearly understanding the world can it be possible to make the right choice.
There is now a so-called "investment category" called "Binary Option", which is a lot online - although many countries have long banned the operation of such things. This thing just appeared shortly before, but it also has been more than a decade old. In essence, it is the "casino game" in the stock market version - "guess the size."
Give you a real-time price data (probably a stock price, or a stock index price, or gold price, futures price, etc.), let the "investor" predict 1 minute later (or 5 minutes, 10 minutes, 15 minutes) The rise and fall of the company - investors can "buy up" or "buy down" ... Guess the right, principal plus interest total 180% return, guess wrong, all compensation. In other words, it is equivalent to "the casino pumping 20%."
This kind of setting makes it possible for so-called investors to achieve a prediction accuracy of at least 70% to be able to "make money in a long-term and stable way". So, after so many years, no one has ever made any money in this so-called "investment category" (actually it was high pumping ratio), and they all lose quickly.
To put it simply, you are starting to "predict" ("guess", "gamble") with 10 dollars. On average, after 10 times, you will lose light - because it is equivalent to pumped 1 dollar each time. Of course, in fact, many people lost their first time, because they came up guessing wrong; there are still many people who guessed it for the first time, and they still have 18 dollars in their hands, and then guess wrong twice in a row (one dollar for one bet and eight dollars for one), also loses light... all the "gambler" data is assembled (equivalent to seeing all gamblers as a big gambler), then on average, "guess" after 10 times, it will lose light.
In a casino, a gambler's "gambling" and "total bet amount" are not the same, because he sometimes wins and sometimes loses, so the final "total bet amount" must be much larger than his "gambling". Overall:
Total bet amount ≌ gambling capital pumping ratio x [1 + (predictive accuracy - 1/2)]
This means that, on the whole, the closer the "total bet amount" is to the "gambling ratio", which means that the forecast accuracy is closer to 1/2... and then we look at these the "casino" data, the final conclusion is that the "investors" (actually gamblers) of so many "binary options" over the years have been attributed together, and ultimately their "total bet amount" is basically It is equal to the value of "gambling ratio". That is:
In general, "predicting the price after a few minutes", no matter what kind of means, no matter what kind of theory, in the end, is meaningless, the prediction accuracy rate is the same as the coin flipping, at most 1/2.
Please note the word "overall" that appears repeatedly in the above text. It's not that no one has made any money, but rather that everyone has lost in general. The statistics tell us that participating in the "investment" of "binary options" (actually the worst "gambling" category, because pumping is too bad, even 20%!) The gamblers of the event, even if it is Some of the "winning money" is also quite limited, and they are all within a certain "allowable range of deviation". There is no "outlier" at all (a concept in statistics, "Outlier " which refers to those that those samples that deviate from the common data).
Need to add here, statistical probability knowledge, is the most basic "money making thinking tool" (there is no concept of "one"). I think anyone who wants to enter the investment field in the future should make up this foundation. In fact, this is a university-based course. However, most people do not understand the basics of statistical probability from the realization of consciousness. Therefore, this life is like someone else diving with the perfect equipment, but you are naked. Just jumping in directly, it doesn't look like it doesn't work, but it is a loss everywhere, but never knows.
"Can you recommend a book?" - I know that you just flashed this thought in your head. There are two suggestions for you:
1.The textbooks in the university are already very good; 2. If you pick a book, you must choose it for yourself, and don't look for other people to recommend books, because that will make your "book picking ability" ever worse and worse." The use of retreat is wherever it applies.
After the expansion of colleges and universities, most people have already rounded out their "college dreams."
Nearly all universities offer courses on “probability statistics”. For many students, this is a required course that you have to learn it then graduate.
But what I see is that many people think their knowledge of college to useless things and give themselves an excuse for not studying hard. As a result, they missed out on studying this important course at the best of times.
In fact, if you are careful experience, many of the things you learn in college can be applied in your life. Even if you can't get direct application, you can use this learning experience to polish your learning ability, and in essence, this can finally help you.
So this is why, I will always encourage everyone to maintain an open mind and pay attention to knowledge in various fields.
All the knowledge in this world is the most important weapon we know about the world. The more weapons you have in your arsenal, the more calm you will be in facing the world.
In finance, there is a hypothesis called "Random walk hypothesis":
This hypothesis believes that the price of the stock market is a random walk mode, so it cannot be predicted.
As early as 1863, a Frenchman, Jules Regnault, mentioned this hypothesis in his book; in 1900, the French mathematician Louis Bachelier was in his doctorate. This concept was also discussed in the paper; this hypothesis known for many more years later, in 1973, after the publication of Burton Malkiel's "A Random Walk Down Wall Street" by Princeton University.
So far, over the past 100 years, the word followed by the word "random walk" is still a "hypothesis" rather than a "theory" - because the controversy is too big. Supporters have even done various experiments, such as letting a senator use darts to shot financial newspapers, like this chooses 20 stocks as a portfolio. After a few years, he found that the performance of this combination same as the overall performance of the stock market. Not worse than the combination recommended by experts, even better than a considerable number of expert recommendations - in a more exaggerated version, not a senator, but an orangutan, not use darts choose but the 20 stocks whose names are still intact in the fragment of the financial newspaper shredded by the orangutans...
However, this does not convincing another group of people - it is as if today, creationism and evolution are still quite the same as their respective supporters (if you think that evolution has long since defeated creationism, then you are too naive) .
All the inferences related to probability are difficult to be universally accepted by the general understanding - this is normal, because it is to look at the "long-term overall result", but what you can see at the moment is only "something at this moment." "Specific cases", so, in general, the difficulty of understanding probability theory is not necessarily lower than the difficulty of understanding evolution.
However, my personal observation is a bit different. I think the reason why the random walk hypothesis is controversial is actually the time limit for forecasting. If I make the following description, the controversy is probably almost no:
- Short-term price forecasts are not possible; 2. Long-term price forecasts are very likely; 3. The longer the forecast time period, the lower the prediction difficulty...
For a qualified investor, the most important thing is not to forget this sentence:
Don't expect too much in the short term and too low in the long term.
If you read this, you will find out why most people can only end in failure.
Short-term price forecasts are impossible, but they have high expectations in the short-term, which will inevitably lead to their excessive disappointment and even destined disappointment.
While long-term stock prices can be predicted, but few people have reasonable expectations for it.
The end result is:
Lost the watermelon and didn't pick up the sesame.
So now that we have learned the metacognitive ability, we should mobilize this ability and clearly understand the current situation.
For short-term price forecasts, random walks should be simply "theory" rather than "hypothesis", predicting the next minute, or the price of the next hour or even the next day, essentially, no matter what theory and tools are used, The final result will not be better than the result of "tossing a coin."
However, the prediction of long-term prices is actually very easy, because the "fundamental" is placed there:
The stock price finally reflects the growth of corporate value; the world has been improving and the economy has been developing, which is the premise; some companies can achieve progress together with the world and develop with the economy... Of course, there are also a large number of companies, can't do it at all...
Thus, a "different conclusion" appeared:
Predicting the price movements of certain stocks is not possible in the short term, but it is easy in the long run. The more forward the time, the easier it is to predict more accurately...
If I "gambling" Google five years later, the stock price is "certain" higher than today's stock price, and much higher - I think, the odds winning are very large, the prediction accuracy should be far more than 1/2, even the facts almost no one is willing to "be gambling" with me.
There is a concept called "Gambler's Fallacy" that refers to:
Most gamblers tend to believe that the previous bet results have an impact on the current bet (at least a certain impact)...
The reason why gamblers are gamblers is actually lack of knowledge. They cannot understand and accept the important concept of probability: "independence incident."
Statistics show that no matter whether you have learned or not, the number of people who are truly unaffected by "gamblers’ fallacy" is less than 20% of the total population. That is to say, at least 80% of people are more or less subject to probably the influence of "gambler fallacy" - don't be shocked, it is a fact, another "amazing" data is that 70% of people simply can't see the logical fallacy of "If P happens, then Q will appear; now Q appears, then P must happen" (Eysenck and Keane, 2000) .
So, if you can understand and rationally accept the "random walk theory" (note that this time I used "theory" instead of "hypothesis"), you can get rid of 80% of "opponents"; if you Further clarifying the scope of application of this "theory" - not long-term, but short-term - then you have brushed away the remaining opponents at least half, so you are probably already a "excellent" contestant.
A clear understanding is not enough, you have to accept it rationally.
We always hear people say that "know easy, do it hard", the more modern version is:
Know a lot of life principles, but still have a bad life.
The key question is not "difficult to do", or "too bad for this life." It is whether you really recognize the corresponding knowledge and concepts.
In my opinion, all concepts and knowledge that cannot change behavior are basically equivalent to useless.
This is like many people who say that "effort is very important", but they really recognize the effort, in fact, this is superficial. But not recognized it inside and does not really to do.
Therefore, whenever the results are unsatisfactory, they will always use the excuse of "I have tried hard" to seek personal comfort.
This is like a lot of people who regret the opportunity they missed and said that they knew it at the beginning. But in fact, they don't know, just look back and find an excuse when the results have come out.
If they really thought it was an opportunity and identity it from the heart, they had early caught it.
In last week's article, I mentioned a detail: "Update data every month", the principle behind it is:
From the very beginning, you will need get used to avoiding "short-term thinking."
Thinking is often involuntary. For unnecessary things, once you start thinking carefully and then you can't stop, then we will be "involuntarily" unable to focus on the important things focus of thinking.
Although this is not an easy task - it takes a long time to "turn habit into subconscious behavior", at least for a year? However, I feel that it is very fast and very cost-effective to be able to do "habits into subconscious" within a year, isn't it?
With regard to "knowledge is power, time is money", I have been an impulse for many years and want to correct it as:
Knowledge is money, time is power.
On the one hand, it is more accurate because of this, and on the other hand, because most people don't know that knowledge is money at all, most people don't know how great the power of time is, and never know how much they should be awe this power.