The Market’s GIGO Metrics: Garbage In, Garbage Out
One of the legacies of managing a portfolio is that I forget to cancel the Google search news trawl I have set up on each name.
As such, Google miraculously delivers so-called news to my mailbox each day, and if I am lucky it will be relevant.
Alas, recently useful news items have been drowned out by what purports to be financial analysis.
Truly Artificial Intelligence (AI)
And once you have clicked on a few of these articles you come to realize that nobody has actually written them, so much as they’ve arrived as the output of AI.
Now, I was never heavily into Greeks, whether it was Nana Mouskouri or the singing tent.
But I learned a few ratios along the way and vaguely understood fat tails, bell-curves, kurtosis (spinal curvature?) and even Tobins Q.
I even quite liked Monte-Carlo stimulations and Sharpe ratios, and you can’t beat a good Fibonacci, preferably with a side salad.
My education was like my stomach – well rounded. A bit of Latin here, a pinch of maths, a garnish of physics, a liberal dose of German et voilà; everything a budding investor needs.
Metric Me This…
It seems though that I missed out on quite a few economic ingredientsia from the truly artificial intelligentsia.
Here then is a list of metrics and ratios I found in the AI-generated analyses sent to me, and have included the “true” definition for good measure:
Schaff Trend Cycle – I’m afraid I couldn’t tell the wheat from the schaff.
Aroon Down level – first devised by Jules McVerne and published in Aroon the World in 80 days.
Piotroski F-Score – what an English supporter shouts when the soccer team loses to Poland (again).
ERP5 rank – where to find a taxi in Edinburgh.
Montier C-Score – the original music written for the Monteverdi Vespers.
Adjusted slope average – how far downhill you can ski after too much schnapps whilst trading at the same time. Example: The Adjusted Slope 125/250d indicator is equal to the average annualized exponential regression slope, over the past 125 and 250 trading days, multiplied by the coefficient of determination (R2).
The Awesome Oscillator signal – only used in bull markets. How did the markets do today? Awesome!
The Balance of Power signal – when the referee decides the scrum is going nowhere and decides on a reset.
The Keltner Channel indicator – useful for sailors who want to know whether it’s time to splice the mainbrace.
The 20-day Chaikin Money Flow – how much money can be illegally taken out of the PRC in just under 3 weeks.
The Tenkan-Sen line – a bit like the Siegfried Line but probably with Japanese overtones.
The Kijun-Sen – a very fast bullet-trade.
The SuperTrend indicator – a line drawn on a graph by analysts who want to support a ‘buy’ recommendation. This line never ever slopes down.
Ichimoku Kinko Hyo charts – the Japanese equivalent of the Kama sutra.
Ah, and if you think these are made up, then I have to disappoint you. They are all genuine terms included in my daily dose of analysis.
It struck me that there seemed to be precious little mention of cash flow or profitability.
These appear to have gone out of fashion.
The ISIHAC Acronym Hacker
My personal favourite analytical tool is the ISIHAC ratio, which replaced ISIRTA (named after the renowned value investor, Angus Prune).
Any idea what it stands for? I’m Sorry I Haven’t A Clue.
So, if you are relying on artificial intelligence to optimize your portfolio allocation, take a tip from an oldie, and forget it.
Head for Linlithgow instead.
It’s real. I’ve been there.