The Baltimore Stockbroker Parable

How one stockbroker managed to achieve a 100% success rate in predicting stock movements

/THREAD/

1/ One day you receive an unsolicited newsletter from a stockbroker in Baltimore.

It contains a tip that a certain stock will soon rise sharply.

A week passes, and as he predicted, the stock goes up.
2/ The next week, you get another newsletter from the stockbroker, this time with a tip about a stock that will fall.

And next week, the stock craters.
3/ Ten weeks go by, and each week you receive a tip about a stock that will go up or down.

Every time the prediction comes true.
4/ On the 11th week, you get a solicitation to invest your money with the Baltimore stockbroker for a hefty commission, justified by his successful predictions.

That sounds like a great deal, right?
5/ This stockbroker seems to know what he is doing.

It is incredibly unlikely that a complete buffoon with no special knowledge would have gotten 10 correct stock predictions in a row.
6/ In fact, you grab a pen and paper and compute the probability of him getting 10 correct predictions in a row.

For a 50-50 chance of being right or wrong, and 10 picks, the calculation is (1/2) in the power of 10.

This comes down to 1/1024, less than 0.1%.
7/ This is so minuscule, that you think that this guy can't be so lucky and he must be the real deal.

But things look different from the stockbroker's side.
8/ In the 1st week, you weren't the only one who received the newsletter.

He sent out 10,240, half with the prediction the stock will rise and half with the opposite prediction.

The 5,120 who received the incorrect prediction never heard from him again.
9/ This continues every week.

The recipients that got the correct prediction, receive another newsletter.

Half the recipients get the "correct" prediction and half of them the "incorrect".
10/ After 10 weeks, there are 10 "lucky" people who received 10 correct predictions in a row.

Ten people who think the stockbroker from Baltimore is an investing genius.

Ten people from whom he expects to collect hefty fees.
11/ The closest this parable came to reality, was in a 2008 reality TV show.

A British magician, Derren Brown, pulled off a similar stunt, mailing various horse-racing picks to thousands of people, eventually convincing one that he had created a foolproof prediction system.
12/ However, this parable is alive and well in the financial industry.

When an investment firm launches a mutual fund, they often maintain it in-house before they open it to the public.
13/ This practice is called incubation.

Typically, these firms incubate dozens of funds at the same time, experimenting with different strategies and allocations.
14/ The funds that show great returns are quickly made available to the public, with detailed documentation of their performance.

The ones that fail, are thrown into the trash can, and the public never notices they even existed.
15/ However, once the public starts investing in these successful mutual funds, they do not maintain their excellent performance.

Instead, they offer the same mediocre returns as all the other mutual funds in the market.
16/ So how do all these affect your investment decisions?

It means you would be better off resisting the temptation of the hot new funds with the excellent track record and incredible returns over the past couple of years.
17/ Instead, follow the unsexy financial planning advice.

Stop looking for the stock magician with the golden touch and put your money in a low-cost index fund and forget about it.

https://t.co/l9sb5X2z2F
18/ When you put your life savings into the new hot fund with the eye-popping returns, you are like the person who received the newsletter from the Baltimore stockbroker.

You have been lured by the impressive results, but you don't know how many chances they had to get them.
19/ The same applies to all the internet gurus, who tell you how good they are because they suggested buying $AMZN 15 years ago.

But they never tell you how many predictions they have made.

/END/
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For more educational threads on financial independence and investing for beginners see below for a collection of threads ๐Ÿ‘‡๐Ÿ‘‡๐Ÿ‘‡

https://t.co/6o3A2IQCMs

More from Kostas ๐Ÿ‘จโ€๐Ÿ’ผ ๐Ÿ“ˆ ๐Ÿ’ธ

If you want to become financially independent and don't know where to start, here is a thread that will help you get started

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1. Review your expenses and make a budget

It will help you see where you overspend, make a plan to save, pay down debt and start


2. Set your investing and retirement goals

How much do you need to support yourself in retirement and when do you want to


3. The earlier you start investing, the better.

Here's why and how time and compounding can become your


4. Invest in an index fund

It's easy, safe, cheap, and the best choice for a beginner in investing, with not much time for

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Collaborated with @niki_poojary

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Step 1. Download Vivaldi Browser

Step 2. Login to trading view

Step 3. Open bank nifty chart in 4 separate windows

Step 4. Click on the first tab and shift + click by mouse on the last tab.

Step 5. Select "Tile all 4 tabs"


What happens is you get 4 charts joint on one screen.

Refer to the attached picture.

The best part about this is this is absolutely free to do.

Also, do note:

I do not have the paid version of trading view.


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Go through this informative thread where @sarosijghosh teaches you how to create multiple free watchlists in the free


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You can create multiple sections sector-wise for free.

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2. Secgregate the stocks/indices based on where they belong.

Kinda like how I did in the picture below.

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A #story from #Thiruvilayadal puranam- one of divine leelas of Bhagwan Shiva

#threadseries #madurai

Koodal Kaandam

Story 21 - it is about how stone elephant came to life and ate sugarcane - When Raja Abhisheka Pandyan met Ellam Valla Siddhar

เฎ•เฎฒเฏเฎฏเฎพเฎฉเฏˆเฎ•เฏเฎ•เฏ เฎ•เฎฐเฏเฎฎเฏเฎชเฎฐเฏเฎคเฏเฎคเฎฟเฎฏ เฎชเฎŸเฎฒเฎฎเฏ


Raja Abhisheka Pandiyan went ahead to meet Ellam Valla Siddhar on the premises of the temple.On seeing the arrival of Raja, people surrounding Siddhar moved back. Abhisheka Pandiyan introduced himself to Siddhar &asked about his whereabouts.Also his purpose of visit to Madurai.

Raja asked why he performed magical acts, does he expect anything from him or people of Madurai.

Siddhar laughed & replied to Raja that he was from Kasi. He had heard a lot about Madurai in Kashi.Also told that this place is a Mukti Kshetram,so he had come to stay here.

Siddhar asked Raja if he has the capability &power to give anything that he asks for. Siddhar told King that he has power to do things even if he think of it.Siddhar asked King to ask whatever he wants & it would be provided, whatever these people had asked, they were granted.


Abhisheka Pandyan was shocked to receive such a reply from Siddhar,& he decided to test the power of this Siddhar. By that time, Raja saw a person in crowd having Sugarcane.

Raja took Sugarcane from that person.
So the cryptocurrency industry has basically two products, one which is relatively benign and doesn't have product market fit, and one which is malignant and does. The industry has a weird superposition of understanding this fact and (strategically?) not understanding it.


The benign product is sovereign programmable money, which is historically a niche interest of folks with a relatively clustered set of beliefs about the state, the literary merit of Snow Crash, and the utility of gold to the modern economy.

This product has narrow appeal and, accordingly, is worth about as much as everything else on a 486 sitting in someone's basement is worth.

The other product is investment scams, which have approximately the best product market fit of anything produced by humans. In no age, in no country, in no city, at no level of sophistication do people consistently say "Actually I would prefer not to get money for nothing."

This product needs the exchanges like they need oxygen, because the value of it is directly tied to having payment rails to move real currency into the ecosystem and some jurisdictional and regulatory legerdemain to stay one step ahead of the banhammer.