Echoes of the Past, Hints of the Future:
The Art of Rethinking Investing and a Glimpse into Market Behaviour. Stock Stories and Strategy Insights for the Modern Investor.
If you’re new here, a warm welcome from my side! If not, you know what to do.
I’m Michael and on a mission to make beating the stock market as easy for you as choosing your favorite ice cream.
I write an algorithm that does exactly that.
Read the full story here.
“In the vast universe of finance, memories of past crises can cast long shadows.
As we navigate through these echoes, there is also the vibrant promise of evolution, growth, and code-driven achievements.”
Hyperparameter Optimization Part 2
“How’s it going?” you ask.
Well, … where do I start?
You remember the whole parameter optimization thing? (Part 1)
First things first. AI is now officially on board.
Great, but how is it going?
Yeah, it dragged its feet a tad longer than I’d hoped. In my search for speed, I took a trial with parallel computing but ended up with a fat belly flop. But every cloud has a silver lining, which means ...
Next stop - cloud computing, to eliminate my hardware restrictions.
And there are other good things. After discovering a bottleneck in my code, I could shorten the runtime from a yawning 40 seconds to a brisk 6 seconds!
Why this obsession with speed?
The faster we are, the earlier we are done with exploring over 1,500 different strategies. 1,500 sounds like a lot, but it isn’t.
The first results?
They’ve raised my eyebrows.
Variants 32, 33, and 34 are promising at the first glance.
And.
We’ve officially passed the 20% CAGR (Compounded Average Growth Rate) mark, folks!
As I danced to celebrate, I hit on a fresh, challenging question.
How to crown the ultimate winning StockStar strategy(s)?
Zeroing in on CAGR, Sharp Ratio, and Standard Deviation is incomplete.
So, for the finals, I’ll throw in some additional filters.
Filtering out crappy penny stocks? Already in.
Pinning down a healthy, inflation-adjusted market cap? Sounds good.
Benchmarking against the mighty Dow Jones? Yep.
Benchmark its daily performance. You bet.
Exclude sectors? Let’s try.
AI will make sure, that our winning strategy remains agile, adapting to the latest data and trends.
Why do I point out AI? Why is it so important?
Remember our chit-chat about shareholder yield and its nuances?
(Link to recap)
For the TLDR-folks in a hurry:
Companies play with their finances wherever they can. Like, sometimes they don’t pay a dividend (btw most don’t). Instead, they choose to pay back debt or repurchase shares. Or they buy back shares while ramping up debt at the same time. This financial dance results in an explosion of possible combinations, each leaving its unique footprint on its stock performance.
Which one is good? Which one is bad?
Well, as 10 annalists and you get 10 different answers.
My take on it?
I’ve learned to listen to the story that the hard facts, data, and figures tell me. They reveal what impact they have on the share price.
No guessing needed. We are seeking the truths.
But there are thousands and thousands of possibilities. How do we get there?
Spoiler. You will have a déjà vu in a second.
With a sprinkle of math magic and the robustness of parameter optimization (told you so), we’re not just spectators; we’re dissecting this dance.
How the ultimate endgame looks like
Expect some nerdiness.
The difference to what I’ve explained in Part 1 seems small, but its punch is hard and powerfull.
Instead of just ranking the individual parts of the formula, imagine ranking each part of the Shareholder Yield Formula on a scale of 0 to 3.
Zero represents a company that’s keeping its dividends close to its chest (i.e., not paying any).
One is like a modest tip, a small dividend.
Two? That’s a more generous gesture, a decent dividend.
And three? Oh boy, they’re making it rain, Benjamin’s!
Snap-on the same logic to Equity Yield and Debt Yield, and what do you get?
A matrix! No, I’m not talking about dodging bullets in slow-mo Keanu Reeves style.
This matrix, as complex as it might seem, is one of many playgrounds of the financial big boys. They study these patterns, decode their nuances, and make their profits accordingly. Guess what?
With that you are a part of the party!
Math is powerful.
Last but not least a different topic.
The Financial Landscape - Then and Now
Every time stocks come up in conversations, the haunting memory of the 2008/09 financial crisis seems to make a spooky comeback. Faces morph into a ghostly pallor as they recall and recount their personal trauma.
Plunging stock prices can send shivers down anyone’s spine if you are not on the short side. And when panic grips, people tend to, well, lose it a bit. They sell. Even worse, often right before the tide turns.
Have you ever wondered how this nightmare looks after we’ve taken a step back?
How does the current financial climate stack up against those dark days of 2008?
Let’s do a short rewind and fast-forward back to today again, shall we?
I got curious about these questions, rolled up my sleeves, and came up with the graphic below.
It’s a colorful code of stock highs (green) and lows (red) over certain periods.
Pin your eyes on the top bar chart. Notice that tipping point on the left? When red completely overshadowed green and green almost vanished from the earth? That, my friends, is one of the hints of an upcoming financial crisis.
Now shift your eyes to the bottom chart, the story of 2022 and 2023. A different scene, isn’t it? Mostly mellow, balanced, and a little frustrating, but far from a horror show. Right now we are in a safe place even though we all know it can change fast.
Progress
Between plotting data and programming (with a fair amount of slaps), it wasn’t boring at all.
And. Did you notice? The rocket has now officially taken off!
(Sound on)
Plan
Drafting the result assessment plan and its implementation.
As time zips by, my thoughts are also turning to spreading the word about our venture. Rough plans are in place, but there’s plenty of detailing left. And good things need time.
What’s on my head
You can't produce a baby in 1 month by getting nine women pregnant.
- Warren Buffet
As Buffett says, the key to investing is emotional control and being prepared - not great talent or effort.
Hit the heart if you're ready to further decode the market's mysteries!
See you soon, StockStar!
Michael
P.S.
Nuggets I’ve enjoyed:
Interesting documentation with Martin Armstrong who rose to be the world’s largest financial advisor.
Why the best never stop working by
If you think somebody should read this, be a good human, share it, and make them happy
Disclaimer:
The information in this article is my personal opinion. I’m not a certified investment professional. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. There are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk and do your own research as well. Investing in the stock market can lead to a total loss of the capital invested.
Thank you very much for your answer. It is very helpful overview.
Great coverage Michael, thank you!