The Online Investing AI Blog

King Arthur's round table. (courtesy Creative Commons.)

The last decade has been marked–perhaps pockmarked–with extreme volatility.

Even more irksome, the cause of this volatility is out of the hands of most investors. Nobody can predict when religious nuts are going to crash planes into buildings or when politicians decide budgets are for the little people.

The conclusion most financial experts come to is that investing–at least good, old, solid, Buy-It-Like-Buffet-style investing is passe.

Antiquated.

Old news.

Done for.

Dead.

You can’t invest anymore, you have to trade.

Actually, I disagree.

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Humans can do a lot of things better than computers–but that list is shrinking.

Once, investing and trading solely belonged to humans. Computers were number-crunching machines that helped investors and traders make decisions.

Then, algorithmic trading came along. Trading strategies designed and maintained by computers saw more and more action in the market. Although,there were always people nearby monitoring those trades.

Now, computers have taken another step toward mastering the market.

At a recent conference in Barcelona, Spain researchers released their findings that showed computer model trading agents beat human traders and other computer trading systems.

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Algorithmic Trader Christian Baha

The following is part of a series that I’ll be creating on trading strategies of well-known traders and investors. Today, we’ll look at the keys to the the investment and trading strategies of Christian Baha.

Trend following trading strategies are often referred to as “systems.” Systems are specific, disciplined actions that lead to specific results, in this case, making money.

It sounds like a machine, doesn’t it?

If so, you might think that you could design a software program or robot that could take these specific steps and generate an effective trading strategy. That was probably the same logical train of thought that led Christian Baha to design his algorithmic trading system.

Baha, a co-founder of Superfund, has made billions through his technical analysis-based trading systems. Initially, the group just provided software initially, but soon started their own fund. The fund has grown to $1.5 billion and has more than 55,000 retail and institutional investors.

In 2011, which wasn’t exactly a banner year for investors so far, the funds are general in the double-digit gain area.

So, what’s the secret sauce that makes these strategies tick?

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Federal Reserve Building--Creative Commons

After two record-breaking attempts to jump start the economy through with no signs of success, the Federal Reserve is now debating a third round of quantitative easing.

QE 3, as it will be called, won’t work. But, beyond that, this is a reckless and unethical way to subvert the traditional role of the board. This continual monetization of debt and debasement of the currency could lead to a super bubble–and a resulting pop that will make 2008 look like a slight recession.

Let’s look at why the Fed is considering a third round of easing. It’s simple: the election year is coming up. A sitting president who is facing high unemployment and a weak economy will not get re-elected. Like a giant campaign kitty, the Fed is going to kick in hundreds of billions to make sure the president gets reelected. This isn’t a Democrat or Republican thing either, folks. Both sides do it.

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The following is part of a series that I’ll be creating on trading strategies of well-known traders and investors. Today, we’ll look at the keys to the the investment and trading strategies of trend trader John W. Henry.

Unless your a Red Sox fan, you might not have heard of John W. Henry. When it comes to the lexicon of great traders, John W. Henry doesn’t hold a candlestick chart to guys like Warren Buffett and Richard Dennis. But he should be there.

One thing you notice about great traders is there’s no such thing as a “pedigree.” They don’t all come from Ivy League schools. They don’t all start investing early. A lot of traders don’t even have a financial background.

Henry was from a farm family. He went to Victor Valley College and spent a stint at the University of California. What was his major? Finance? Economics? Nope. Philosophy. He didn’t graduate, by the way.

Despite this unconventional background, in the late 1970s, Henry began to trade. First, he traded something he was familiar with–soybeans and corn futures. But, Henry eventually created and tested a systematic trend trading strategy for multiple assets, mostly commodities.

The tests proved successful. That’s an understatement.

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You know, if you think about it. The founding fathers–and more than a few of the founding mothers, I’m sure–were weirdos.

I mean, flying a kite in a thunderstorm. Really? Who does that?

Declaring independence before you won the war? That’s a bit on the fruity side.

And standing up to the world’s best army with a bunch of rag-tag farmers who didn’t know a left flank from a pork flank?

Sometimes doing the impossible, whether that’s starting a new country or balancing your check book, means doing the weird. One seemingly impossible thing Americans–and others around the world who share our thirst for freedom–are trying to accomplish is to take control of our finances.

In honor of our founding weirdos, I present five strange ways to celebrate your financial independence.

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The following is part of a series that I’ll be creating on trading strategies of well-known traders and investors. Today, we’ll look at the keys to the the investment and trading strategies of Warren Buffett.

Buffett, the sage of Omaha, is probably the most famous example of a value investor who used several strategies to make his holding company Berkshire Hathaway a premier investment institution while making billions for himself. But he’s not the pioneer. One of the pioneers of value investing is Benjamin Graham, who just so happened to be Buffett’s teacher. Graham, who we’ll profile in an upcoming post, literally wrote the book on smart investing. The book, which is now the Bible of value investing, is called The Intelligent Investor.

Graham taught Buffett the cornerstone to his trading strategies. He looks for a “margin of safety.” Essentially, you’re looking for stocks that are cheaper than they should be. Sounds easy, right?

It is.

And it isn’t.

Let’s take a look at this strategy in depth.

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There’s an old Zen saying that if you meet the Buddha while you’re traveling, you should kill him.

A shocking statement. But, as with most Zen statements, there are deeper levels of interpretation than the most literal.

According to one interpretation, the saying means that you should accept nobody as a guru, someone who will lead you to a better life. You–and you alone–should take that responsibility.

The road to investing is littered with investment gurus who want to tell you what to trade, when to trade, and how to trade. They probably even have a course for sale that will give you “the secret” to trading.

If you meet one of these guys–or gals–on the road (or on the internet) kill them.

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BitCoin is either an economic revolution or another foray into the internet-based currency trap.

Technically, it’s a person-to-person virtual currency network. When you use bitcoin, you’re actually receiving protected digital keys that you can use to exchange for goods and services from other folks who accept or use Bitcoin.

If you buy an item, that coin transfers to the next person, just like passing on a dollar at the grocery story.

However, Bitcoin takes a different tack from early attempts at virtual coins.
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