• John Hawver

Mr Market needs Therapy

When I started as a trader 15 years ago, I incessantly listened to CNBC. It was on all the time, no matter where I was. But as I learned more and more, and saw the underbelly of the markets, it began to ring hollow. And finally I realized it was mostly pure drivel and just had to turn it off. Now I keep NHL network on, at least that’s accurate and fun.

In the last few years machine learning has taken off. My expertise as a quantitative trader was mostly on the pricing side of the equation, then I self-taught myself into more linear supervised learning techniques. Most models in high-frequency are linearly based for latency purposes, so my professional education basically stopped there. Out of curiosity, I’ve kept learning and expanding my repertoire of machine learning skills. It’s been fun.

A few months ago I was poking around some market sentiment modelling, initially as part of a competition on kaggle (if you don’t know kaggle, and want to get involved in machine learning, it’s a great place to start). I decided to develop my own sentiment index as a bit of a toy exercise. So each day I pull (scrape) a bunch of news articles down, parse them, determine the markets pulse, and record the numbers in my personal database. Everyone now and then I look at it. Here’s the most recent plot:

Except for one outlier day, the news sentiment is always negative. Depressing. I’ve played with how I score words and how I filter them, and the results are largely the same. Keep in mind, the above time period covers one of the sharpest market rallies we’ve *ever* had; Mr Market seems to be in need of therapy.

So what gives? My conclusion is that doom and gloom sells. D&G attracts eyeballs and that attracts advertising dollars and those dollars keep news outlets in business. This is very much in line with my conclusion years ago with respect to CNBC; most news can be safely ignored.

For the average investor, there are some easy actions to take. Turn off the news. If you want to invest in individual stocks or other assets, do your own research, or at least read the plethora of sources most brokers offer. Otherwise, dollar cost average your investments into index ETF’s and go watch hockey, you’ll have more fun and be far more productive.