fair experiments

I was reading "The only guide to a winning investment strategy you'll ever need" by Larry E. Swedroe. A good book. I recommend reading it.

It started off well. Along the way, it got a little wordy, a little repetitive, but quite OK. Then came one story that disappointed me. In his attempt to deprecate technicians who try to predict future stock trends he came up with the following. A group of technicians were given randomly generated charts that were posed as stock price charts. The technicians made their predictions, and then it was disclosed that the stock trends had been randomly generated. HA HA. The author believes that this example will convince one and all that technical analysis is futile.

Perhaps it is true that it is impossible to make accurate predictions based on past stock price charts. BUT, the experiment does not show that. In fact, this prank is not an experiment. To give real stock price charts to the technicians and to compare predictions with what actually happens would have been an experiment.

A random number generator is capable of generating possibly any pattern. For example, I could have a random image generator that produces 2-D color pictures. Such an image generator is certainly capable of producing the Mona Lisa given enough attempts. Now, suppose that it does generate an image that looks like the Mona Lisa. I take it to an art expert and ask him what painting it looks like, and get the obvious answer. Then I reveal that the image was in fact randomly generated. HA HA.

Does it show that the art expert is an idiot? On the contrary, the person conducting such an experiment certainly is. The person is even insecure, scared of being proved wrong, so much so that he will take no chances, will ask no questions, will receive no answers, lest he receive the correct answer.

There are people with scientific temper, and then there are people who don't know the difference.

look before you leap

Good intentions are important, yet never sufficient to ensure that the end will be good. In the end, consequences matter. Think of the end before beginning. Sometimes the end is unpredictable, yet often we simply blind ourselves by confusing the intended outcome with the likely (sometimes inevitable) outcome. There will be no dearth of people telling you exactly where you went wrong, after you have gone wrong. Never indulge in post-analysis but for building your own foresight.