Dead Ink Vinyl

I have been reading John Allen Paulos’s A Mathematician Plays the Stock Market, which has been entertaining. It combines the author’s real-world anecdotes with some psychology, everyday math, and game theory to create a pleasurable bit of reading. It appeals to the logician in me. The book discusses various approaches to investing starting with “emotional investing” — which lead to the Paulos’s fated love affair with WorldCom — then technical analysis, and finally fundamental analysis. I assume that other investment strategies are investigated as well, as I am only half way through the book. The author applies common sense and mathematics to shed some light on each strategy.

I picked up the book because I’ve grown interested in the application of neural networks and complex adaptive systems to understand (and profit from) financial systems. I am   not the   first   person   to   think   of this. Clearly, there is a lot of research in this field. However, before I jumped into crazy levels of math theory, AI theory, and financial theory (all of which intrigue me), I wanted a light introduction to the application of math theory to the stock market.

I am inclined to believe that the stock market is not truly random because individuals do not make buy and sell decisions randomly — they do not base their decisions on, say, a flip of a coin or other truly random phenomena. Individuals have intellegence and an intent to profit, and they make their decisions based on their expectations of the future. Part of those expectations include anticipating other people’s expectations of the future. Buying and selling can be influenced by near-random external events (for example, natural disasters), but those events do not inherently impact the market — it is the buy and sell decisions made by people in reaction to the event that impacts the market.

Still, it is possible to not be truly random but have all of the affects thereof — just think of a good pseudo-random number generator. I am undecided on whether I believe that share prices or market indexes are predictable. However, I do not buy into the efficient market hypothesis. I have never fallen for the economist’s line: “let’s assume a perfectly rational investor…” I have never met such a person, so I call shenanigans on economists and their silly assumptions made to simplify the math involved.

Intriguing. I got a call and a follow-up email this morning from a Macromedia representative. She emphasized:

In order to ensure the success of Flex, Macromedia is taking every Flex-project “seriously” in the sense that the Flex product team has set up a private forum to help our customers create their new RIA applications with Flex.  The product team is active in getting immediate feedback from our customers so new features/enhancements can go into the maintenance releases.

Macromedia seems to have put a lot of eggs into this basket and is making sure that initial reactions are favorable.