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I agreed with you on this until I thought about how Congress might muck up the really important issues. Now, I'm totally in favor of political masturbation -- let Congress get its panties in a twist over whether gay couples can gamble about flag burning. As long as they are shooting...

Your tax bracket has nothing to do with it as long as you're investing the money in CDs, short-term capital gains, or short-term dividends (and aren't subject to AMT). Someone in a low tax bracket pays less on the gains AND gets less benefit from the mortgage deduction. Someone in a high tax...

Thanks. It's always nice to find another thoughtful person Yes, although the effects can subtle depending on two broad factors. First, the market price trajectory can affects people's behavior, but it depends on how much the customers (and managers of the company) are impacted by market price...

The real reason to not pay down the mortgage is two-fold: 1) The risk-weighted after-tax return on trading exceeds the after-tax cost of the mortgage. If you trade short-term, then the before-tax rate of return and the before-tax mortgage interest rate can be directly compared. That is, you...

Please don't take this as a smartass answer, but if you have a 10% chance of winning only 4 units of profit and a 90% chance of losing 1 unit, then don't take the trade! You will lose an average of 0.5 unit on every trade and you will most certainly go bankrupt. If only 10% of the trades...

I'd say that a "trading system" provides automatible, non-discretionary answers to the following 5 decisions: 1) Selecting which market(s) to trade and which instrument(s) within that market (e.g. the specific futures contract or option). 2) The timing or pricing of each (long or short)...

You might start looking at cross-correlations with lags of weeks, months, even years. I recall Victor Niederhoffer talking about this with brokerage stocks vs the S&P. On the time scale of months, the S&P did well in the months after brokerage stocks did well. But on the time scale of a year...

The reason that many gamblers will likely make poor traders is that their risk-seeking utility curves encourage them to undertake negative expected value activities -- they gladly accept the option to win $1000 with a 1-in-1000 chance or lose $2 with 999-in-1000 chance (which has an expected...

As a fallback, you can use Google to search ET for attachments of a given type. For example, the search string: This search returns hits to threads that have excel spreadsheets in them. It's not perfect because it's not by date (or perfectly up-to-date), but its extremely fast and its something.

Yes, you're right, perhaps I've been too narrow in my examples. Using options to limit the downside certainly hedges risk. The Long + Put trade does highlight a special problem with hedging. How does the trader know that the Put isn't overpriced by the roughly same amount that the Long is...

First, thanks for your intelligent replies -- it's always nice to converse another thoughtful trader. I do agree that balancing the baskets is not that hard at first glance. You can use fundamental analysis (as you suggest) to create matched sets. Or you can go quantitative and partition the...

That's not an easy question because an IPO'ed company can suffer many fates that pull it off the radar screen (M&A, delisting, being taken private, etc.) Have you googled terms such as IPO, bankruptcy, survivorship? (if you do this the first hit is...

Yes, because wage is always a spectrum unless constrained by law. But whether this drop is good or bad is less clear. Downsides: 1. Some people who currently earn 5.15/hr might see a drop in wages. 2. Wages at the bottom might fluctuate -- creating boom/bust cycles for people living on...

Four reasons: 1. The number of potential voters who earn minimum wage vastly exceeds the number of business owners who might have to pay minimum wage -- for every voter that owns a McDonalds, there are 20 voters that work there. (And the 1,000 consumers that eat at that McDonalds aren't...

You say its not a challenge, but then you go on to say: This sounds like the epitome of a challenge to me.:) What you suggest is a very interesting extension of pairs-trading to baskets in an industry. It would be a huge challenge to sort the 60-70 REITs in a way that puts 20 in the long...

This is a real challenge. On the one hand you want the short basket to be similar enough to remove market/industry risk factors. On the other hand, the short basket must be dissimilar enough that it doesn't have the same trading set-ups as the long-basket. If the hedge is too similar it moves...

It's true that electronics have deflationary pricing, but they are not a true example of deflation in an economic sense. True deflation affects wages so that people's income drops too. And when people know that they won't be earning as many dollars in the future as they are now, they do hoard...

This is probably the most insightful comment in terms of handling big shocks. Avoiding 100% commitment to a market that could experience a big shock ensures that one lives to trade another day. Always maintaining a reserve ensures that when the panic comes, one can buy the low as opposed to...

PCA would help one understand the small and medium-sized risks by revealing the historically dominant sources of covariation among various tradables. But for bigger shocks, PCA suffers from two faults. First, it assumes a linear correlation and symmetric distributions among the various...

No, because: 1) melt-downs can move all the hedges in the same direction, 2) markets can hit trading limits that prevent a timely exit or stop-loss on one or more of the hedges; 3) counter-parties can fail; 4) governments can capriciously change the rules for traders or markets; 5)...