Hi all,

Have been quiet for a while since I am back in Japan. You might have heard of me mentioning some companies. I feel interested in Seagate and Yahoo recently after their price revisions followed by their earning announcements. I am doing experiment other things.

I read a book about Economic Value Added and Market Value Added, a boring book. For me, it seems harder to understand than when I read relativity. I don’t think it is harder, but just the way that book put simple equations to tables and notes are not good.

http://en.wikipedia.org/wiki/Economic_value_added

Actually, it is a form of Value Investing (http://en.wikipedia.org/wiki/Value_investing). I only like to invest on companies I know; value investing is a new space for me. It comes to extreme after I read the little blue book. I tried to apply the Magic Formula Investing, it was interesting. It is like what people say, when you gamble at the first time, you always earn; seduction to the black hole, maybe. I bought LRW, a company I would have never paid attention to on Tuesday, and it returned the price of 14 of that book on one day…

2 weeks before, my dad asked me to evaluate an investment suggestion he read:

- It is relatively safe to trade on company on a day that it has a large 50 days % variance. (What the…?!)

Here is my way to interpret that:

1, 50Var = 50 days % variance = (Price – Mean)/Mean

2, to compare if that value is large, I take one year sample of that 50Var and take its mean and standard deviation (yes, back to school now)

3, 50Var > mean + SD, it is relatively expensive; 50Var < mean – SD, it is relatively cheap

As we are taking 50 days variance, it is only good for short term investment (indicative for the most 50 trading days). Before your head grows too big, I attached the excel, on sheet 2, you can type a correct stock code on the blue box, then press enter and click the button and wait to see the result… Before you buy or sell a stock, you know if it is recent high or low. For my mathematician friends, enjoy digesting and debug if you want.

The data is imported from Yahoo and if it is not working, you can exit the Excel and try again, because it is just a piece of short macro I wrote for my dad before I slept, it is not so sophisticated. That is data mining, people read graph and 200 days and 100 days average line, are all for that reason. LRW is also a result of data mining. Which means, data mining is a way to trading blindly. Yeah, good for lazy people~

IT IS NOT ALWAYS CORRECT~!

I really hate that, but when I use so many “relatively” in the mail, you might have noticed that. I am reading another book (yes, mostly alone in Japan and I read book), about Long Term Management Capital. I don’t think in my life I would get Noble Prize for economy, and I wouldn’t be bothered to figure out a winning formula such that I will get trillion dollars to trade. However, LTMC did, and they failed catastrophically. The last URL from wikipedia I quote would be this one (http://en.wikipedia.org/wiki/Random_walk_hypothesis), Random Walk Hypothesis. Stock price for someone is like tossing coins. If events are independent, it would be so stupid to think there is more chance to see head if there have been tails in the last 10 tosses. (though we all 信邪) To be rational, the chance should also be 50/50.

My conclusion is data mining is a way of news analysis, and it won’t give definite result. But I will go further with Value Investing suggested by the little book and with help of the Excel to experiment further.

p.s. GVHR is also similar to LRW, and will tell the result end of next week.

Cheers,

Eric

(companies mentioned: I have STX, LRW and GVHR on my hand)