Strange But Untrue and Other Facts That Don't Matter

Like good sports commentators with slow runs of play to fill, finance turns to statistics to fill the time. To many of us, data is data and the more reliable data you have the more chance you have of being able to to sift the odd gram of gold out of the muck. But there comes a point where the noise exceeds the signal and, as Theodore Roszak said, there is "Data data everywhere and not a thought to think"

But slow days and newsless days (today being a pretty good example) has everyone turning to lower grade soothsayer techniques in the absence of others. Was there a power failure at the Financial Meteorological station supercomputers leading the weather forecasters to turn to slicing up small animals and spreading out their entrails instead? For TMM's inboxes are filling up with statistics which instead of being valued for their ability to forecast are being offered just for for their bizarre interestingness. That Met Man would say "Oh I don't even care if it will rain,  just look at that squishy red bit, I didn't know it would be connected to that moving wormy thing". The financial equivalent of which is -

"Of the four negative weeks just two of them included losses over 1%".
"Tuesdays have been up days for the last x weeks"
"The S&P 500 trades at 12.8% or higher from its 200 DMA just 8.3% of the time".

How riveting yet absolutely devoid of predictive powers. This is the financial equivalent of the football commentator explaining how many times the letter "e" appears in the away team captains' grandmother's names over the past 40 seasons. Markets have to say something. There can be no silence. Audiences don't expect silences and the suppliers of information abhor a silence, be they media or sell side information providers. We are pattern recognising beings but there is a point where data mining crosses over into the astrological. Finance's version of "Thats Amazing"

However we are reminded of a very apt interview question for would be traders that does rely on Bayesian probability - "If I was to flip a coin 99 times and it was to come up heads each time, what would you call for the next flip and why?" Of course the 50/50 rule is the one that "Jim Smug" fresh out of Uni would answer, but we are looking for the cynical old salt who announces. "Heads because the coin is obviously bent". But in the cases above, the twist of fit and assumption to derive the next move is just far too far away to be useful.

TMM have long been wanting to write a book to counter the books you find in your friends' lavatories entitled "Strange but True", the ones to be found next to the 1986 Guinness Book of Records and the odd "White Company" catalogue that proves that men aren't the only ones to dawdle on the pan. But TMM's book would be called "Strange but Untrue" - A compendium of strange facts and figures all of which are amazingly untrue.

Originally it was to contain Strange but Untruths such as
"Most shark attacks occur in less that 1/2 an inch of water"
"17% of the air you breathe on the subway is human skin"
"If you spread the surface area of your lungs over the area of a tennis court you will die" Actually that one is true.

But we have realised today that the world of finance is so full of data from which absurd sound bites can be fashioned we thought we would add our own, so if you are in the business of peddling information to clients or just bored and want to confuse a 12yr old quant analyst please feel free to pick one of the following and present it with a serious face and "knowing" eyebrows .

"The 4th friday sees a reversal of a percentage equal to all the rises on the Wednesdays divided by those of the Tuesdays"
"The PE ratio of the leading 20 Estoxx is equal to the fibonacci retracement of their Market caps".
"Just 26.78% of the best performing days are in the week before Lent (conditional upon Easter being in April)"
"If you read the first initial of the DOW components in reverse market cap order they spell CRASH COMING"
"19.87% is the average PE of firms with PEs between 19.75% and 20% and is also the year of the great crash."
"The last time the SPX went up a bit, up a bit more, down a bit, left a bit .. FIRE. .. They missed earnings by 12%".
"Currency codes have only 3 letters against most nasdaq stocks having 4 because spot dealers attention span isn't as long."
"The introduction of the Euro was a really good idea".

All of which may be completely untrue. But the market loves a statistic or a truism and TMM often spend their day wincing at some of the old catch phrases that are wheeled out as simple justification for not knowing. We aren't just talking the nonsense that comes out in annual reports, analyst or Investment Manager reports such as -

"Your board continues to implement the new multi-polar strategy, though current headwinds offer significant challenges"
"The current unfolding barbell perfectly describes the arc of investor indecision as the underlying market shifts to the paradigm we descibed in last months bulletin"
"The Investment managers after careful consideration have adjusted the benchmark – investors will be pleased to see that the latest quarter has substantially out performed this new threshold"

We mean the ones that are considered gospel and if muttered knowingly are meant to end debate, such as -

"More people have bought than sold". - Or "Everybody's buying". - For a trade to be complete every sell has to match a buy.
"Whatever goes up will come back down" - Voyager 1 is a good case "not" in point. As are UK rail fares.
"You can’t go broke taking a profit" - Unless you spend more on your vices than the amount you take as profit.
"Prices always move for a reason" - Rarely for the reason most people believe.
"New new things always make money" - Unless they involve trains ( railroad stock dumps / Eurotunnel) or Vanadium Redox Batteries as TMM found out to their cost. .
"Charts tell the future" - Do they? Can you tell us the future from this one please?

Have you got it? Many things are not as clear as they would seem yet somethings are clearer than you think.