Saturday, August 13, 2005

Statistics Is Only A Tool... But A Good Weapon

Stats and math is a good tool to have around. And no matter what, we will never have a perfect model that explains everything... particularly the stock market. Einstein once said something like that you shouldn't put too much faith in a beautiful (mathematical) model, because there's alway room for error.

That's funny because building models have become so easy with the development of statistical software packages. However, relying on what they spit out as results is like going on blind faith. For instance, say that you have built a nice model to predict the GDP. However, if the independant variable(s) you've chosen result in a regression error that is serially correlated, then you should know what that means and what those numbers say.

It's probably true that nobody can beat the market if they solely rely on couple of factors. It is necessary that many tools be used to manage your money. I like to think of investing as going into battle... the more intelligent weapons (tools) you have, the better likelihood of your success.

1 Comments:

At 6:05 PM, Anonymous QUALITY STOCKS UNDER 5 DOLLARS said...

Interesting

 

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