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Picking a Stock Market Advisor

19 March 2007 - Features - Editor

Essential stock market culture has remained largely unchanged since its early years during the first half of the 20th century. Computer screens may have replaced frenzied trading on floors to some extent, but indices, trends, forward looking statements, and speculations of all kinds, continue to dominate the stock market world.

It is rather common knowledge that severe discontinuities loom on the horizon. Few companies listed on any stock market claim that even their near term futures will resemble the past in any significant way. However, are investors ready with new tools to deal with the new drivers of stock market valuations?

Every site related to a stock market aspect, including this one, sports graphs of price trends. Experts speak of business and economic cycles, and buttress arguments about how securities may behave in the future, with examples of what has transpired in the past. Most of us are conscious at one level that past trends have become irrelevant, but lapse back to using them to make routine investing decisions!

Stochastic modeling has become an important ingredient of modern stock market operations. This statistical method enables investors to quantify relationships between random variables, build alternate scenarios, and predict the future based on current developments rather than on historical facts. Executives who have been away from Management schools for some time, or who are not especially fond of Math, may be uncomfortable with such conditional modeling, or may even be unaware of it altogether!

Gone are the days when one could spot stock market winners at first glance. Many of yesterday’s dividend heroes have become unprofitable, or acquired by competitors. Others gain market share and crucial assets out of the stock market lime light. How can we capture new and hidden values amidst turmoil? Globalization means that some of the best opportunities are oceans apart from us: how do we stay relevant?

No one can excel in stock market operations on his or her own. Large financial institutions have highly resourced teams sizing up every investment opportunities, and we small fry have our advisors and sources. However, big or small, every team needs a stochastic modeling expert to help with innovative stock market decision-making. These nerds may not be your typical networking gadfly, but their back-room work has to form the platform for dynamic stock market operations today.

Reliance on stochastic modeling does not diminish the role of stock market veterans. Environmental scanning to select disparate variables for association, and the design of appropriate moves to gauge market reactions, remain a field of distinct domain expertise. The most accomplished statistician cannot produce results without the right tips from those with years of stock market experience behind them. Those who collaborate optimally will emerge as tomorrow’s winners.

 


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