Saturday, February 06, 2010
black swan hunting
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Estes termos de pesquisa estão realçados: stock market black swan
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How Predictable Are Black Swans? The Black Swan Hunters
InvestorEducation / Forecasts & Technical Analysis Jan 21, 2010 - 12:28 PM
By: Eduardo_Moreno
InvestorEducation
Best Financial Markets Analysis ArticleWe invest using the scientific method and tools such as convergent evolution and comparative economic history in order to try to predict black swans. Here is our story:
1-The black swan.
The Black Swan (Cygnus atratus) is a large aquatic bird which breeds mainly in the southeast and southwest regions of Australia.
But the term black swan has also come to mean a highly improbable event with three main characteristics: 1- It is unpredictable. 2- It carries a massive impact. 3- After the fact we concoct an explanation that makes it appear more predictable than it was. Black Swan Events were described by Nassim Nicholas Taleb in his 2007 book, The Black Swan. Use of the term a black swan derives from the 17th-century European presumption that 'all swans must be white', because all three european species of swans (the whooper swan (Cygnus cygnus), the mute swan (Cygnus olor), and Bewick's Swan, Cygnus bewickii ) had white feathers. In that context, a black swan was something that was impossible, and could not exist.
However, after the discovery of black swans in Western Australia during the 18th century, the term metamorphosed to connote that a perceived impossibility may later be found to exist. But are really black swans so unpredictable or could an informed observer predict them? In other words, is there anything intrinsic in black swans that make them unpredictable, as Taleb argues, or is it just our lack of relevant information what leads to their unpredictability?
2- Black Swans are predictable.
To make the point, lets take the Black Swan (the bird) and tell a little story about its predictability. What I am trying to tell by this story, is that black swans (all of them, not only the birds) may be more predictable than the current wave of obscurantism promoted by the Nassim Nicholas Talebs of the world wants us to believe. It therefore goes beyond ornithological talk. I will argue that science starts to have tools to predict the future, not only in highly repetitive systems like astronomy, the cicles of the moon or a solar eclipse, but also in systems that seemed more unpredictable just a few years ago, like evolution or economy. For example evolution of Black Swans. Could one search for the information that would lead to the correct prediction of black swans? What does it take for an individual to become a black swan hunter? What type of information is it needed to hunt for black swans?
Obviously, because black swans are events that have not yet taken place, one needs to be able to predict the future. In the case of the Black Swan (the birds) one should be able to predict the evolution of the species. However, most evolutionary scientists assume that the outcomes of evolution are random, trends are little more than drunkard´s walks and most evolutionary products are masterpieces of improvisation. However I will argue, together with Cambridge´s researcher Simon Conway Morris, that evolution is much more predictable than generally assumed. And not only evolution, but the world is also much more predictable than generally assumed. So, as said above, lets start the story of Black Swan predictability and go back to 16th-century Spain. All swans described until now are white, but the explorers have just brought to the King and the Queen of Spain a very different type of swan found in what constitutes modern Chile.
Everybody is puzzled. Have a look at it:
It is the black necked swan, Cygnus melancoryphus. A handful of people, those at the right place at right time, should be by now aware of at least two main points: 1- Some swan feathers can be black. 2- Not all swans are completely white. This should of course raise doubts about the impossibility of black swans. It is a hint that appeared more than hundred years before the discovery of black swans by europeans. But things get even better. The degree of predictability becomes huge thanks to the phenomenon known as convergent evolution. I will next argue that convergent evolution helps to predict the future. 3-What is convergent evolution?
Convergent evolution describes the acquisition of the same biological trait in unrelated animals. For example, birds have thousands of genes. Many genes are involved in pigmentation of the feathers. But one called MC1R plays a crucial role in controlling the type of pigment synthesized by animals, including humans. In particular, high activity of MC1R leads to synthesis of black pigments, whereas medium activity leads to the synthesis of red pigments and lack of activity leads to total lack of pigmentation (i.e., white). Interestingly, mutations in this gene appear in the Black Swan but not in the white swans. And even more interestingly, similar mutations appear in other black birds like black arctic skuas (Stercorarius parasiticus) or even black rock pocket mice. And a similar case happens with the black necked swan, where the same gene is mutated but in a different position, a position that leads to activation of MC1R and that it is also correlated with black color in chickens, quail and bananaquit. An it is even a mutation associated with rare black jaguars! What am I trying to get to? The fact that variations in the same gene are always involved in the creation of black birds is one proof of the power of convergent evolution and the few choices that the world can take to lead to events such as a Black Swan. It suggests that the world is very constrained and solutions are channeled by those constraints.
Of course, the degree to which constraints affects the predictability of the world is the subject of controversy. In his book Wonderful Life, Stephen Jay Gould argues that if the tape of life were re-wound and played back, life would have taken a very different course. Simon Conway Morris counters this argument, arguing that convergence is a dominant force in evolution, and that because the same environmental and physical constraints act on all life, there is an "optimum plan" which life will inevitably evolve towards, and therefore the outcome will be highly predictable. For example, Black Swans can exist and we can even predict which gene (out of thousands) they will mutate to become black.
4-Black swan hunting investment method.
I side with Simon Conway Morris and extend his argument to economic black swans. As mentioned at beguinning of this article, we have been investing for more than four years using the scientific method and tools such as convergent evolution and comparative economic history in order to try to predict black swans (even before they got the name...). We have had returns of more than 100% per year, having predicted the collapse of the spanish housing bubble, the rise of silver and gold and the problems in Greece and Dubai. Of course, past returns do not guarantee future returns, but we are excited and we plan to continue investing using our method of black swan hunting. We give lectures on black swan hunting.
To contact us, please e-mail: emoreno@cnio.es
By Eduardo Moreno-Lampaya
http://blackswanhunters.blogspot.com/
Eduardo Moreno-Lampaya is a private investor, has a PhD in biology and an MBA in administration of technology-based companies.
© 2010 Copyright Eduardo Moreno-Lampaya - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
© 2005-2010 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
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Estes termos de pesquisa estão realçados: stock market black swan
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Best of the Week
Most Popular of the Week
1.Economic Depression Wealth Preservation, Investing, and Prepping in 2010 - Mac_Slavo
2.Are We In An Economic Depression?- Bob_Chapman
3.Insider's View of the U.S. Real Estate Train Wreck Crash- David_Galland
4.Global Economies Debt Crisis, Japan Heading for Currency Crisis- Paul_L_Kasriel
5.George Soros Jumps Into the Great Gold Bubble Debate with Rogers and Faber- LewRockwell
6.Fed Starting to Unwind Loose Monetary Policy, Could Trigger Secondary Recession- Gary_North
7.Financial Crisis Triggered Shock and Awe Response for Accounting Driven Recovery- Gordon_T_Long
8.Stock Market Unfinished Business From 2009 For 2010- Doug_Wakefield
Weeks Analysis
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Technical Trading Charts for EWZ, UUP, SMH, BAC and WFC- 1st Feb 10
Gold and Silver the Next Rolling Bubble- 1st Feb 10
Are You 100% Sure They Saved the Financial System?- 1st Feb 10
The Collapse of Sovereign Government Bonds The Next Financial Crisis Contagion- 1st Feb 10
If China Sneezes, Wall Street Will Catch A Cold- 1st Feb 10
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The Statistical Economic Recovery has Arrived- 30th Jan 10
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The Coming Debt Cataclysm, Some Investment Opportunities & Defences- 29th Jan 10
Gold's Inflation Bogey, Part II- 29th Jan 10
The China Google Controversy and the Stock Market - 29th Jan 10
This is Like the Great Depression and Worse- 29th Jan 10
Growing Investor Discontent With U.S. Government Economic Solutions ...- 29th Jan 10
Copper, Zinc, Nickel... Impact From Soaring Base Metals Stockpiles- 29th Jan 10
Gold’s China Syndrome- 29th Jan 10
Why the Stock Market Has Fallen, Battle of the Titans, JP Morgan Versus Goldman Sachs - 29th Jan 10
Gold Versus Co2 Bancor, Why Are Gold Bugs Scared?- 29th Jan 10
Banks Under Attack From Washington, The Impact on You- 29th Jan 10
Retracement Not Reversal in S&P Stocks Index- 29th Jan 10
India Monetary Policy Tightens, Read Hawkish and Inflation to Rise- 29th Jan 10
The FDA Ensuring the Next Disaster in the U.S. - 29th Jan 10
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Russia's Gazprom Angel or Demon? - 29th Jan 10
Stock Market Crash Risk, Geronimo! - 28th Jan 10
Financial Crisis Triggered Shock and Awe Response for Accounting Driven Recovery- 28th Jan 10
Nasdaq Trendline Alert for Stock Index Traders- 28th Jan 10
The Danger behind the Fed's Exceptional Profits- 28th Jan 10
Obama And Earnings Reports Soothe Stock Market Investors Nerves- 28th Jan 10
Chinese Quest for Shortcut to Economic Greatness- 28th Jan 10
Keeping Your Options Open (and Valuing Them)- 28th Jan 10
Paul Volcker Financial Sector Reform Plan Sparks Split Between JP Morgan and Goldman Sachs- 28th Jan 10
Asian Automakers Are in the Driver’s Seat- 28th Jan 10
The Fed FOMC Tango with Gold and U.S. Dollar- 28th Jan 10
Silver Update, Investors Instant Gratification Or Complete Apathy?- 28th Jan 10
U.S. Low Interest Rates Corporate and State Bonds Mad Rush- 28th Jan 10
Gold Stock Bugs Need a Boost?- 28th Jan 10
Stock and Commodities Trading for SP500, Gold, Silver and Crude Oil - 28th Jan 10
Constituents of Commodity Companies Index (CCI) Finally Revealed- 28th Jan 10
Gold Is Going Nowhere But Up- 28th Jan 10
Gold and Silver Stocks Appear to Be Bottoming, Go Long Now?- 27th Jan 10
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Barclays Blood Diamond Tells Taxpayers to Go F' Themselves- 27th Jan 10
Gold's Inflation Bogey and Prechter's Stock Market 50 Point Crash- 27th Jan 10
China Funds FXI, GXC, PGJ, HAO Rolling Over- 27th Jan 10
Bernanke's Burn Notice, Why Now? Research Reveals Insight Into Fed Chairman's Popularity - 27th Jan 10
Where Will US Job Growth Come From?- 27th Jan 10
Hedge Fund Investing - 27th Jan 10
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Nouriel Roubini From Davos Says Western Economies Weak Economic Recovery 2010 - 27th Jan 10
Robert Prechter Warns Bear Market Rally is Over - 27th Jan 10
Why the Government Wants to Hijack Your 401(k)- 27th Jan 10
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Rule By The Rich- 27th Jan 10
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How Predictable Are Black Swans? The Black Swan Hunters
InvestorEducation / Forecasts & Technical Analysis Jan 21, 2010 - 12:28 PM
By: Eduardo_Moreno
InvestorEducation
Best Financial Markets Analysis ArticleWe invest using the scientific method and tools such as convergent evolution and comparative economic history in order to try to predict black swans. Here is our story:
1-The black swan.
The Black Swan (Cygnus atratus) is a large aquatic bird which breeds mainly in the southeast and southwest regions of Australia.
But the term black swan has also come to mean a highly improbable event with three main characteristics: 1- It is unpredictable. 2- It carries a massive impact. 3- After the fact we concoct an explanation that makes it appear more predictable than it was. Black Swan Events were described by Nassim Nicholas Taleb in his 2007 book, The Black Swan. Use of the term a black swan derives from the 17th-century European presumption that 'all swans must be white', because all three european species of swans (the whooper swan (Cygnus cygnus), the mute swan (Cygnus olor), and Bewick's Swan, Cygnus bewickii ) had white feathers. In that context, a black swan was something that was impossible, and could not exist.
However, after the discovery of black swans in Western Australia during the 18th century, the term metamorphosed to connote that a perceived impossibility may later be found to exist. But are really black swans so unpredictable or could an informed observer predict them? In other words, is there anything intrinsic in black swans that make them unpredictable, as Taleb argues, or is it just our lack of relevant information what leads to their unpredictability?
2- Black Swans are predictable.
To make the point, lets take the Black Swan (the bird) and tell a little story about its predictability. What I am trying to tell by this story, is that black swans (all of them, not only the birds) may be more predictable than the current wave of obscurantism promoted by the Nassim Nicholas Talebs of the world wants us to believe. It therefore goes beyond ornithological talk. I will argue that science starts to have tools to predict the future, not only in highly repetitive systems like astronomy, the cicles of the moon or a solar eclipse, but also in systems that seemed more unpredictable just a few years ago, like evolution or economy. For example evolution of Black Swans. Could one search for the information that would lead to the correct prediction of black swans? What does it take for an individual to become a black swan hunter? What type of information is it needed to hunt for black swans?
Obviously, because black swans are events that have not yet taken place, one needs to be able to predict the future. In the case of the Black Swan (the birds) one should be able to predict the evolution of the species. However, most evolutionary scientists assume that the outcomes of evolution are random, trends are little more than drunkard´s walks and most evolutionary products are masterpieces of improvisation. However I will argue, together with Cambridge´s researcher Simon Conway Morris, that evolution is much more predictable than generally assumed. And not only evolution, but the world is also much more predictable than generally assumed. So, as said above, lets start the story of Black Swan predictability and go back to 16th-century Spain. All swans described until now are white, but the explorers have just brought to the King and the Queen of Spain a very different type of swan found in what constitutes modern Chile.
Everybody is puzzled. Have a look at it:
It is the black necked swan, Cygnus melancoryphus. A handful of people, those at the right place at right time, should be by now aware of at least two main points: 1- Some swan feathers can be black. 2- Not all swans are completely white. This should of course raise doubts about the impossibility of black swans. It is a hint that appeared more than hundred years before the discovery of black swans by europeans. But things get even better. The degree of predictability becomes huge thanks to the phenomenon known as convergent evolution. I will next argue that convergent evolution helps to predict the future. 3-What is convergent evolution?
Convergent evolution describes the acquisition of the same biological trait in unrelated animals. For example, birds have thousands of genes. Many genes are involved in pigmentation of the feathers. But one called MC1R plays a crucial role in controlling the type of pigment synthesized by animals, including humans. In particular, high activity of MC1R leads to synthesis of black pigments, whereas medium activity leads to the synthesis of red pigments and lack of activity leads to total lack of pigmentation (i.e., white). Interestingly, mutations in this gene appear in the Black Swan but not in the white swans. And even more interestingly, similar mutations appear in other black birds like black arctic skuas (Stercorarius parasiticus) or even black rock pocket mice. And a similar case happens with the black necked swan, where the same gene is mutated but in a different position, a position that leads to activation of MC1R and that it is also correlated with black color in chickens, quail and bananaquit. An it is even a mutation associated with rare black jaguars! What am I trying to get to? The fact that variations in the same gene are always involved in the creation of black birds is one proof of the power of convergent evolution and the few choices that the world can take to lead to events such as a Black Swan. It suggests that the world is very constrained and solutions are channeled by those constraints.
Of course, the degree to which constraints affects the predictability of the world is the subject of controversy. In his book Wonderful Life, Stephen Jay Gould argues that if the tape of life were re-wound and played back, life would have taken a very different course. Simon Conway Morris counters this argument, arguing that convergence is a dominant force in evolution, and that because the same environmental and physical constraints act on all life, there is an "optimum plan" which life will inevitably evolve towards, and therefore the outcome will be highly predictable. For example, Black Swans can exist and we can even predict which gene (out of thousands) they will mutate to become black.
4-Black swan hunting investment method.
I side with Simon Conway Morris and extend his argument to economic black swans. As mentioned at beguinning of this article, we have been investing for more than four years using the scientific method and tools such as convergent evolution and comparative economic history in order to try to predict black swans (even before they got the name...). We have had returns of more than 100% per year, having predicted the collapse of the spanish housing bubble, the rise of silver and gold and the problems in Greece and Dubai. Of course, past returns do not guarantee future returns, but we are excited and we plan to continue investing using our method of black swan hunting. We give lectures on black swan hunting.
To contact us, please e-mail: emoreno@cnio.es
By Eduardo Moreno-Lampaya
http://blackswanhunters.blogspot.com/
Eduardo Moreno-Lampaya is a private investor, has a PhD in biology and an MBA in administration of technology-based companies.
© 2010 Copyright Eduardo Moreno-Lampaya - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
© 2005-2010 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
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