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Michael KouritzinMichael Kouritzin
Perfect Timing by
PerfectTiming by
Death, taxes …and volatilityDeath, taxes …and volatility
The onlyThe only1.1. Constant is change – Constant is change – Heraclitus of Ephesus (535 BC - 475 BC)Heraclitus of Ephesus (535 BC - 475 BC)
2.2. Market consistency is volatilityMarket consistency is volatility
3.3. Sure non-winning strategy is buy and holdSure non-winning strategy is buy and hold
4.4. Way to win is to throw your money aroundWay to win is to throw your money around
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Volatility CharacteristicsVolatility Characteristics
ScaryScaryBumpy, Bumpy, “Can bite you”“Can bite you”
VolatilityVolatility
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Is this an Alligator?Is this an Alligator?
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Similar ColourSimilar Colour
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Same Aspect RatioSame Aspect Ratio
Same color
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Different Number of LegsDifferent Number of Legs
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Volatility is GoodVolatility is Good
Markets become irrational - MispricingMarkets become irrational - MispricingComputer Trading – Faster Decisions not BetterComputer Trading – Faster Decisions not Better
GoalGoal: Be Prepared – Fast and Smart: Be Prepared – Fast and Smart
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Which is Better?Which is Better?
300
400
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1/3/20
004/3
/2000
7/3/20
0010
/3/20
001/3
/2001
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017/3
/2001
10/3/
2001
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024/3
/2002
7/3/20
0210
/3/20
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/2003
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/2003
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2003
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044/3
/2004
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/3/20
041/3
/2005
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057/3
/2005
10/3/
2005
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/2006
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061/3
/2007
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/2007
10/3/
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/2008
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/2009
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097/3
/2009
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1/3/20
104/3
/2010
7/3/20
1010
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101/3
/2011
4/3/20
117/3
/2011
10/3/
2011
1/3/20
124/3
/2012
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Plan 1: Think ahead, Volatility into ReturnsPlan 1: Think ahead, Volatility into Returns
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Numb3rs Clip (CBS)Numb3rs Clip (CBS)
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PerfectTiming by
www.randomknowledge.netwww.randomknowledge.net
Only Traded XIUOnly Traded XIU
Outperforming 1%/month afterOutperforming 1%/month after FeesFees Paying somebody to tradePaying somebody to trade
2% Human Error -> 2% Human Error -> GoalGoal: Automate: Automate
3-4% Small Size Cost 3-4% Small Size Cost -> -> GoalGoal: Grow: Grow
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Plan 2: Sector Rotation (Mar - Apr 2012)Plan 2: Sector Rotation (Mar - Apr 2012)
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www.randomknowledge.netwww.randomknowledge.net
SPADE StrategySPADE StrategyBased on SERP estimates, provide Based on SERP estimates, provide asset allocation recommendationsasset allocation recommendations
05
1015202530354045
Asset 1 Asset 2 Asset 3 Asset 4 Asset 5
MAP ModelMAP ModelMathematical model of financial Mathematical model of financial
asset dynamicsasset dynamics
Real Time Real Time Market DataMarket Data
REAL LIFEREAL LIFE TECHNOLOGY PLATFORMTECHNOLOGY PLATFORM
Asset’s Fair ValueAsset’s Fair Value
SERP AlgorithmSERP AlgorithmEstimation of fair asset valuesEstimation of fair asset values
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Buying Low and Selling HighBuying Low and Selling High
Random Knowledge
MSCI World Index
Overvalued Asset
Undervalued Asset
Backtested Performance from Backtested Performance from Dec 31, 1989 – Dec 31, 2003Dec 31, 1989 – Dec 31, 2003
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Backtest Performance ChartBacktest Performance ChartReturn Comparison vs. TSX Composite
Jan 1990 - Apr 2004
0
5000000
10000000
15000000
20000000
25000000
30000000
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/199
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4
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5
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6
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7
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/199
8
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/200
0
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/200
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2
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02
6/29
/200
3
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03
CN
D $
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Power of Random AlgorithmsPower of Random Algorithms
1.1. You write down 2 #s on the back of 2 cards You write down 2 #s on the back of 2 cards (can’t be equal) – Call (can’t be equal) – Call aa < < bb
2.2. I’ll flip 1 at random an I’ll flip 1 at random an exposed card exposed card (“EC”)(“EC”)
3.3. With > 50% Prob., I can guess if the With > 50% Prob., I can guess if the hidden hidden card card (“HC”)(“HC”) is greater or less than EC.is greater or less than EC.
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Random AlgorithmRandom Algorithm
1. Generate
2. If , then guess
else .
)1,0(NR
EC R EC HC
EC HC
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Proof by diagramProof by diagram
a bR1 < a < bguess correct when EC = b i.e. 50%
R2 > a > bguess correctwith 50%
a < R3 < bguess correct with 100%
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