The Online Investing AI Blog

Any scientist will tell you that when you see a pattern, there must be an underlying cause.

In the past few decades and especially the last few years, we’ve seen a pattern of businesses, governments and institutions that were too big to fail… fail.

AIG. GM. Fannie Mae and Freddie Mac. Greece. Spain. Do I need to go on?

Remember, if there is a pattern, there is probably a cause. In fact, there are a few reasons why groups that can’t fail inevitably do fail.

One reason that too-big-to-fail become most-likely-to-fail is because these organizations believe these organizations take on unnecessary risks because they are convinced that their bigness or smartness — or whatever other belief backs their infallibility – makes them immune from the consequences.

Most of the leaders of these organizations also believe that if they are too-big-to-fail, someone will bail out their bad decisions. If you believe that packaging risky mortgage loans has no consequence, or that you will eventually be bailed out, why not take that risk?

Too-big-to-fail organizations don’t do their homework. It’s like the student who whizzes through a few easy courses and then is suddenly confronted with completely new material. What do they do? Usually, they fail those first few tests until they either spend more time and effort on the new material, or they drop out.

Some groups also believe that they can predict the future because their a series of assessments proved accurate. But market conditions and economic realities are always morphing — for good and for bad.

The truth is, when we fail to let people fail, we create the seeds of even greater failure.

Just ask Joe Schumpeter.

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Each day, machines, not humans, are plowing through statistics and crunching numbers trying to devise trading algorithms to make money in stock markets, futures markets, commodities markets, and any other place that traders can turn a dime.

They’ve been successful.

But not totally successful. And not successful for long stretches.

The stories of trading strategies failing are just as common as stories of amazing machine-learning success in the market.

Why is that?

I’ll take a stab. I believe that most machine learning and artificial intelligence programs are essentially created short-sighted. To build an automated trading system, you “train” the program to understand data. This data can be technical or fundamental, or a range of other data sets. The program learns the relationships between the data and the market. When factor x goes up, the market reacts with a y, let’s say.

But, this data is not an object, per se, but is really a shadow of currents in a broader economy. So, the program ends up not be predictive at all. It is reacting to a reactive set of data.

Read more…

Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI, Success AI, artificial intelligence, Automated Trading, failure, human emotion, machines, markets, risk, Success, trading

Image courtesy Creative Commons

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This is a guest post by Tim Eyre.

Failing Fast: Leveraging Strategic Failures for Unparalleled Success

Why hasn’t technology yet brought us a working time machine? Then we could go into the future, find out what products, services, and what business models were going to succeed, come back into the past, and replicate them – or at least invest in them. Or if not a time machine, how about a crystal ball? Every businessperson I know would like to have one of those!

Image courtesy ItzaFineDay

Well, we don’t have time machines or working crystal balls – at least, nobody I know has one!

So, we are doomed to fail, at least some of the time.

That’s what I used to think.

Read more…

Accelerating Technology, Business Strategy, Dreams Come True, Success airplane, business, customer, design, failure, product, risks, service, Success, technology, wired

Many books that I read focus on a certain aspect of trading. They might talk about technical analysis or a specific entry technique. I feel that these books are OK, but they won’t really make it possible for most readers to succeed at trading. To succeed at trading there are certain dimensions of trading that need to be mastered, and those are the ones that are least written about. They include:

• Psychology
• Process
• Learning
• Money Management
• Risk Management
• Discipline
• Understanding Oneself

Last week I finished reading Come Into My Trading Room by Alexander Elder. I really like this book because it offers tons of clear, practical information that we can use to become successful trades. And, it addresses many of the dimensions of trading that I think are most important. I think it is the perfect book for anyone who wants to improve their trading, especially for beginners and intermediate traders.

Read more…

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Recently I discovered Texas Hold’em Poker on Facebook. I never really enjoyed playing poker very much, but to my surprise it is pretty interesting. Why? Because the more I play poker the more I realize how it is like trading.

Image courtesy Joe King

As I play, I immediately relate many things I have read about trading to what is happening in the game. It seems that many the information in books about trading is totally applicable to poker.

Read more…

Automated Trading, Great Books, Internet, Investing, Money, Success bet, emotions, facebook, failure, fun, gambling, games, Money, poker, position size, risk, risk management, Success, texas hold'em, trading

BeauB@Flickr

Yesterday, we talked about social proof as one program that hinders your success as a trader. Social proof is the tendency to rely on others to validate one’s actions.

But there are other programs that can cause you to lose at trading and investing. One of the most common is greed: an unrelenting desire for more.

I know what you’re thinking: But isn’t everyone in the market seeking more money? When you make a trade, aren’t you trying to make more money?

Isn’t greed good for traders?

Actually, greed is based more on the feeling of lack and limitation. We have to make a distinction between a healthy attitude toward abundance and a blinding greed that becomes fixated on losing positions.

Greed serves as blinders for investors.

Here’s a scenario:

Read more…

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Most investors are looking at their online investment account statements or reviewing their 401K stubs and are shaking their heads.

In times like these, the investor is his or her own harshest critic. How could they have been so dumb? Why didn’t they pull money out? Why didn’t they pay more attention? Why did I listen to (insert financial guru’s name here)?

If you’ve been beating yourself up lately because of poor investment choices and bad business moves, according to Austin Edwards of Motley Fool, you’re in good, if not great company.

He recounts several business and investment failures, including:

Benjamin Graham who wrote the book (literally) on Value Investing, went broke three times from his investments.

Warren Buffet, Graham’s student (in more ways than one) tried to save a dying textile mill. He was forced to liquidate.

John Lasseter, founder of Pixar, was fired by Disney for his first attempt at an animated feature.

If you’re up against similar business, investment or personal challenges, you can learn a few lessons here:

Fear not failure. By taking risks, you inevitably increase your risks to encounter failure.

Document your failures and successes. And study those steps that led to failure or success. Graham, for example, made careful notes about each investing “experiment” and sorted through the successful strategies among the losing strategies.

Reinforce. Practice the methods that led you to success and avoid the steps that led you to failure.

So, when you look at those statements again, don’t be hard on yourself. You’re in good company. Learn those lessons and you’ll be in the best company possible.

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The economy isn’t exactly “taking off.”

Let’s face it, we have royally *bleep*ed up the economy and it is, while not in quite the shambles the media would like to portray it, in sad shape.

Great!

What? Great?

To fail means you are at least trying and if you use failure as a way to learn lessons, it is never fatal. In fact, you’ll become smarter and stronger.

Here are some of the lessons I think we should learn from the current economic status.

No Economy is an island. Those anti-American, anti-Western, anti-capitalist countries oil-rich countries now realize that financial well-being is interconnected.

No personal economy is an island. If you make good financial decisions, the overall economy will benefit. This means creating wealth and spending wealth smartly.

You are responsible for your own wealth creation. Mr. Madoff was a stern task master for many folks on this lesson. Even financial masters and community keystones can get greedy or turn stupid with your money. After all, it’s not their money. It’s your money.

You need to take responsibility for your future.

It’s the last lesson that will be the toughest. A lot of folks just aren’t numbers people. They want to earn their money and let someone else help their money work for them. There have to be solutions for those people, as well.

We, at Online Investing AI, want to create advanced technology that is so powerful it can assist people with their wealth-creation strategies easily and as risk-free as possible.

Accelerating Technology, Business Strategy, Dreams Come True, Investing failure, lessons, Money, rich, wealth, wealth creation

The owner of a record company named Tom looked on as the fires consumed his multi-million dollar production facility.

As the blaze licked the sky and smoke belched black clouds, witnesses scanned the face of the noted 67-year-old record producer and entertainment mogul for signs of distress and anguish. After all, his insurance would cover only about 25 percent of the cost of the loss. He would have to come up with the remaining $80 million.

His son, Charlie, finally approached him, expecting him to be devastated beyond words. Instead, Charlie found that his father was smiling and asking for his wife and partner to come witness this spectacular sight. He was also planning on how to rebuild.

What gives? Did Tom lose his wits because of the shock?

No, Tom was a great failure. He was known for his ability to fail… and fail… and then succeed beyond his wildest imagination. Failure was just a single rap on the door of success.

In fact, his friend once said of Tom, “Where others might see disaster and failure he was always optimistically looking for opportunities and seeing the possibility of new directions for improvements.”

You see you might know Tom, the record producer and fire victim, better as Thomas Edison. Edison lost his fledgling multi-million dollar phonograph record factory on that day in 1914, but he didn’t lose the keys to his former success.

And now you know the rest of the story…

But did Edison rebuild? You bet and he used lessons from the fire and some help from his friend Henry Ford to create a better, more innovative facility.

If your facing your own fire, maybe the economy has you down, hear what Tom is telling you:

Be courageous. I have seen many depressions in business. Always America has emerged from these stronger and more prosperous. Be brave as your fathers before you. Have faith! Go forward!”

If you want to learn more about Tom’s success, check out Innovate Like Edison by Michael J. Gelb and Sarah Miller Caldicott.

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