Survey results

As promised, here are the results of the subscriber poll conducted last week. We received 134 responses. Even though that represented a fairly small sample, it was adequate to get some good solid feedback on the site.

Based on the responses received, here is a summary of changes that will be made to the site:

  • I will commence a mid-week trading commentary, especially during volatile market environments like one we are experiencing now.
  • We are taking ongoing steps to improve and optimize the response time of the site.
  • There will be advance warnings of site outages for maintenance purposes. Previous outages were linked to software updates that failed. We will, in future, schedule software updates to minimize service disruptions.
  • There will be more posts with sector and industry analysis.
  • We will take steps to gate model signals so that unpaid subscribers will not have immediate access.

Question 1: About 75% of subscribers are individual investors, the rest are professionals.

Question 2: This was a surprise to me. The demand for short-term trading insights was much higher than I thought. I had expected a greater affinity for the big picture and mix of fundamental, macro and technical analysis that had been a signature of my weekend posts.

My response: Reading between the lines, a large number of subscribers (individuals) are on a Holy Grail like quest for a magic black-box trading model. There are a couple of problems with that quest:

  • There are no magic black boxes
  • Websites with trading advice are highly labor intensive and therefore expensive

Wesley Gray recently wrote a sobering post in which he postulated an investor with perfect foresight of the best winners and worst losers with a five year lookahead. What if you had the stock pages exactly five years from now? How would your portfolio have done? The answer was surprising. Returns would have been obviously terrific, but a long-only portfolio would have seen a maximum drawdown of 76%! A long-short portfolio of winners and losers would have seen a maximum loss of 70%!

The results of this study shows the difficulty the task of short-term trading. Gray`s point was you probably would have fired God as your portfolio manager.

I offer readers on such a Holy Grail search a couple of cautionary tales. First, I refer to a post by Dominque Dassault about her experience with hedge funds, a conclusion that I can confirm about quant models in general (see Will the quants blow up the market again):

While in Greenwich Ct. one afternoon I will never forget a conversation I had with a leading quantitative portfolio manager. He said to me that despite its obvious attributes “Black Box” trading was very tricky. The algorithms may work for a while [even a very long while] and then, inexplicably, they’ll just completely “BLOW-UP”. To him the most important component to quantitative trading was not the creation of a good model. To him, amazingly, that was a challenge but not especially difficult. The real challenge, for him, was to “sniff out” the degrading model prior to its inevitable “BLOW-UP”. And I quote his humble, resolute observation “because, you know, eventually they ALL blow-up“…as most did in August 2007.

It was a “who’s who” of legendary hedge fund firms that had assembled “crack” teams of “Black Box” modelers: Citadel, Renaissance, DE Shaw, Tudor, Atticus, Harbinger and so many Tiger “cubs” including Tontine [not all strictly quantitative but, at least, dedicated to the intellectual dogma]…all preceded by Amaranth in 2006 and the legendary Long Term Capital Management’s [“picking up pennies in front of a steam-roller“] demise one decade earlier.

In addition, such searches brings out the charlatans looking to make a quick buck from naive investors and traders looking for a shortcut to riches. Harry Markopolis, with whom I socialized with during my time in Boston and who went on to unmask Bernie Madoff, recently warned about three Ponzi schemes that he is in the process of uncovering.

There is no Holy Grail trading model. Day and swing trading advice involve a high level of labor intensity to produce, as the analyst(s) have to be glued to a screen during and after market hours. That`s why the going rate for such services seem to be around USD 100 per month, which is significantly higher than a Humble Student of the Markets subscription.

With those caveats, I will nevertheless respond to subscriber feedback and start writing a mid-week market update.

Question 3: Site response was ok, though it revealed areas for improvement.

My response: I am working diligently to improve the speed and response of the website. We have done a number of tweaks that should improve the response time. If that`s inadequate, we will take further steps.

In addition, we have put some policies and procedures in place to minimize site downtime, as past outages were related to software updates. There will be warnings and announcements of website outages for maintenance purposes so that subscribers can be prepared.

Question 4: Most readers are aware of security concerns.

My response: It is unfortunate that we had to go through some teething pains with this site. I am seeing far fewer password resets and lockouts in the security log today compared to a month ago. By now, you should learned that your usernames is the first part of your email address (e.g. an email with translates to a username of myname). In addition, the password reset link is here, if you forget your password. There is also a Help function on the menu if you get into trouble.

I would like to add a word about website security. Despite numerous attempts, there have not been any successful penetrations of the site.

Even if the site were to be compromised, we have an additional layer of protection for your credit card details. We use a process called hosted tokenization were none of your credit card details are stored on our site. Here is how it works:

  1. When you first subscribe and you get asked for your credit card information, control is passed from Humble Student of the Markets using a secured socket to the credit card processor, which takes your details and validates them. At that point, you are talking to the site of the credit processor, not our site.
  2. The credit card processor then gives us a multi-digit code called a token that identifies you and your credit card details using a secured socket protocol. This token is then stored at our site, but it is only good for charges to your account by a single merchant (namely Humble Student of the Markets, Inc.).
This way, even if our site were to be compromised, the intruders would only have access to tokens which are useless to anyone else. No system is perfect, but this is an additional layer of security that we use to keep your credit card information safe.
Question 5: I received a number of other comments.
Some subscribers have asked for greater disclosure of my positions. The purpose of position disclosure is to indicate any possible conflicts that are contained in my posts. There are numerous reasons why you may not want to exactly follow my trading:
  • We operate under different tax regimes.
  • We have different risk and return objectives and preferences. My pain threshold will certainly be different from yours.
  • While I disclose what I buy and hold, I don’t disclose how much I buy and hold for the reasons cited above.
To repeat: The disclosure is to indicate possible conflicts. Do not use them to echo my trading. Your mileage will be different – and it should be.
Some subscribers have asked for more currency analysis. Sorry, that’s not an area of core competence for me.
Some subscribers have asked for more sector analysis. I will keep this suggestion in mind going forward. The last weekend post contained more analysis on sector rotation (see Waiting for the market to heal).
Some subscribers have asked me to gate the model signals in my weekend posts, as showing it in the preamble on the old website devalues what is available to subscribers. I will also keep that suggestion in mind going forward.