Today I am being interviewed in conjunction with a project @ Columbia’s Graduate School of Business and a journalism fellowship project. Nouriel Roubini and Emmanuel Derman have been/are also on the docket for the subject of “What Went Wrong & What Can Be Done.”
The major points I want to make – and they apply to all traders – are
#1) Start with the core question – the Social Markets Hypothesis question of “what will the other guy do?” – in the timeframe you care about.
#2) Realize that numbers of any sort are just a tool to help in understanding the answer to question 1. No algorithm or program anywhere can account for the vicisstudes of human behavior and in order to most effectively deploy the algorithm/system, one needs to know its limititations. Without acknowledging its limitations, you have no resources when the tool is inadequate.
#3) Learn to research and evaluate internal feeling based data. Both value it and beware of the risks it brings – a double edge sword. Instinct delivered through the conduit of feelings can tell you things your deliberate analysis cannot (due to human brain’s ability to recognize a cat versus a dog) but unexamined feelings can lead you astray via their natural tendency to inject risk management (fear) or take the simplest route (the same thing will happen next as happened last).
Sophisticated modelers have powerful tools at their disposal but they still have to answer the same question that discretionary less capitalized market participants do. Anyone will be well served to make decisions in concert with their brain’s view on the ambigous data of human markets!