No. of Recommendations: 8
Well I unintentionally stirred up a hornets nest. The two most esteemed old time members of the board mungofitch and zeelotes both seem to dismiss my ML attempt at stock prediction as a complete data mining folly.
But trying to respond;
FlyingCircut; “And, (extremely simplistically), the causal relationships have changed over time and will continue to change over time.”
Another good point! It’s obvious to anyone doing MI for many years that factors that worked 15 years ago don’t work today. As they say mispricing is discovered and arbitraged away. That’s why I thought the ML training would work better using say only the last 5 years of history. However, the few tests that I’ve done show using longer training periods are giving better results. On my list to try is using all recent data along with subsampled longer-term data to emphasize the recent without leaving out all the past.
Looking at how the ML models are approaching the prediction problem I see advantages and disadvantages. The advantages are an automated tool that finds general relationships covering the whole data set at a speed no individual person could hope to match.
There are still very distinct advantages to the very skilled individual building a classic MI screen.
If you have followed Yuval Taylor over the last several years as of 11/23, he states he has had an eight-year CAGR of 44%. That’s almost unbelievable for someone with my much less stellular results. But if you observe how Yuval a person with no finance background but an outstanding mind is approaching the problem after reading his posts for several years, I believe him. Perhaps P123 where he was running his screens and could monitor his results also did, they hired him. He has systematically gone through the detailed analysis of financial factors, digging deeper and modifying to his preferences value ratios, earnings growth, share turnover and many more. For each on he tries to understand how they work in different sectors/industries.
The point is I believe an intelligent person with the right tools with a full time multi year effort can always perform better than the ML can. Yuval has been working at P123 alongside the team developing their ML system and he has stated he at least for the present doesn’t see the value in it for him.
