Genius or Fooled by Randomness

Am I getting wiser or am I just a genius?I would like to think I am both, let me tell you a little story. Last week Maurice, Charis and I were discussing ways to massage the data that we are feeding our macro model. You see the problem we have is that the data we use is in different formats, i.e. the index is daily data and then we have macro variables that are daily, weekly, monthly or quarterly in format.Can you see that the statistical information we receive MAY be distorted, so our Professor consultant suggested a couple of weeks ago a method of stretching say monthly data to in fact make it look like daily data. There are various algebraic techniques which I will leave for now, and we are in the process of doing the math.On Monday this week whilst discussing a similar issue revolving around how to identify whether the macro variables do in fact have a relationship with the index, I am pretty good at random problem solving, so guess what I threw a "way out there" idea at the team.I remembered going on a course which covered cycles in the stock markets, it works with mathematical formulae that somehow seem to be able to predict certain cycles. The most common of which is called a "Fourier Cycle Regression." Somewhere in the depth of my mind I could see an inclining of a solution through the Fourier regression technique.Naturally as I most probably would have done, Maurice and Charis shot me down, they had vaguely heard of the formulae but knew very little about it and how it could solve our problem.Today we had a meeting with all the people involved in our model development, and after putting forward our problem; our Professor of Mathematics said I think I have a solution. "We need to run Wavelets through our data using 'Fourier Regression" to see where there is 'noise' in the data so that we can sift the good data from the bad. The technique is called "data mining". An example would be used in Physics; picture a laser gun, it shoots a particle and it splits into millions of pieces, now if you wanted to work out from which whole particle this shard comes from you would run millions of wavelet currents through the particle shards to kind of see which ones belonged to who. (I think this is how it works).

Wow did I feel smart having mentioned this idea!!Now coming to my title was my suggestion on Monday with all its naïveté the work of a genius or was it just the random act of throwing out ideas from the base of my limited knowledge?You see it cannot be genius if I have thrown scores of ideas at different problems with only 1 or 2 striking home. So although I believe I am not quite the fool who is tricked into falling for random luck, however I do believe, the genius may just be in the act of continuing to throw way out ideas at different problems, even with a low strike rate.So in the end am I a genius or am I fooled into the belief that coming up with a genius idea for a difficult problem is enough to make me a genius. Could I be both a genius and a fool at the same time, or can I be a random fool or worse just a fool?I think the answer is firstly that I am no genius, however, that doesn't mean I cannot have moments of genius, such as the time above. The message I think is that by continuing to come up with moments of genius, no matter how rare they may be, puts one the path to becoming a genius. So no I am not fooled by the randomness of my genius, I am however encouraged by the fact that I am on my way to becoming a genius.

Mood of the Day

British Land Profit Triples on Asset Values, Tax Gain (Update1) (Bloomberg)

2007-02-13 02:51 (New York) By Peter Woodifield Feb. 13 (Bloomberg) -- British Land Co., Europe's largest property company by assets, said fiscal third-quarter profit almost tripled as the value of properties increased and it got a tax boost after converting to a real estate investment trust. Net income in the three months ended Dec. 31 increased to 1.5 billion pounds ($2.9 billion), or 285 pence a share, from 508 million pounds, or 97.5 pence, a year earlier, the London-based company said in a statement today. ``We have a full agenda for British Land to cement our position as a flagship of the new REIT regime,'' Chairman Chris Gibson-Smith said in the statement. ``The business continues to make good progress and is well positioned for the future.'' British Land was one of nine U.K. real estate companies to convert to a REIT on Jan. 1, the first possible day. Britain's six biggest property companies will have combined tax liabilities of 3.7 billion pounds erased by changing to REITs. That's about four times more than they will pay in conversion charges. Net asset value, the measure used by analysts and investors to gauge U.K. real estate company performance, rose 3.8 percent for British Land to 1,685 pence at Dec. 31 from three months earlier before charges relating to REITs. The third-quarter results included a charge of 338 million pounds to convert to a REIT, equivalent to 2 percent of its assets, as well as a charge of 77 million pounds relating to debt refinancings. In addition it eliminated deferred taxes of 1.65 billion pounds that it will no longer be liable for as a REIT. British Land prelet 54 percent of a speculative development it's building in London's main financial district known as the City, the company said in a separate statement today. Law firm Mayer, Brown, Rowe & Maw LLP is taking 223,000 square feet in 201 Bishopsgate, which is part of British Land's Broadgate office complex. The firm has an option for a further 61,500 square feet in the 408,000 square-foot building. Central London offices are the best-performing type of U.K. commercial real estate. Offices in the West End, the most expensive in the world, returned 32 percent last year, compared with 18 percent for all U.K. commercial real estate, London-based researcher Investment Property Databank Ltd. said Feb. 1. British Land shares fell 9 pence to 1,679 pence in London yesterday, valuing the company at 8.75 billion pounds. The stock has gained 42 percent in the past year.

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Liberty International Profit Jumps on Rising Rents, Values (Bloomberg)

2007-02-14 02:23 (New York) By Simon Packard Feb. 14 (Bloomberg) -- Liberty International Plc, the U.K.'s largest mall owner, said profit quadrupled last year as it opened new shopping centers and acquired Covent Garden market in London while the value of its properties increased. Net income increased to 1.56 billion pounds ($3 billion), or 33.9 pence a share, from 366 million pounds, or 30.1 pence, a year earlier, the London-based company said today in a statement. Chief Executive Officer David Fischel is betting Liberty's out-of town malls, the MetroCentre in Gateshead, will attract more shoppers than rival locations and enable the company to raise rents. In August, Liberty paid 421 million pounds to buy the seven-acre Covent Garden site, one of the main destinations for shoppers in central London. ``We are well placed to continue to prosper and to respond to challenges which lie ahead,'' Chairman Robert Finch said in the statement, announcing a 10 percent increase in the second- half dividend to 17.25 pence a share. Net rental income rose 13 percent to 341 million pounds. An increase in the value of its properties added 587 million pounds to 2006 earnings. Profit from derivatives added a further 164 million pound to earnings last year.

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Property – Asia

CapitaLand Fourth-Quarter Net Rises to S$456 Million (Update5) (Bloomberg)

2007-02-14 01:49 (New York) By Michele Batchelor Feb. 14 (Bloomberg) -- CapitaLand Ltd., Southeast Asia's largest developer, said fourth-quarter profit rose fivefold, better than analysts expected, helped by a rebounding Singapore home market and divestment gains. The stock rose to a record. Net income increased to S$455.8 million ($296 million), or 16.2 cents a share, from S$93.2 million, or 3.3 cents a share, a year earlier, the company said in a statement to the Singapore stock exchange today. That's higher than the S$129 million median estimate of five analysts surveyed by Bloomberg News. CapitaLand and City Developments Ltd., Singapore's biggest developers, are tearing down old apartment blocks and buying more land as the longest economic expansion in more than five years fuels housing demand. Home prices in the city-state rose 3.8 percent in the fourth quarter, the biggest gain in seven years. ``I'm still bullish on the Singapore property market,'' said Winson Fong, who manages $2 billion at SG Asset Management in Singapore, including CapitaLand shares. ``The economy is doing well, unemployment is low. A lot of projects are going on in full stream, I can't see any particular bad news.'' The stock rose as much as 30 cents, or 4.1 percent, to S$7.55, trading at S$7.50 at 2:14 p.m. Singapore time.

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India Property Stocks Fall After Cash Limit Is Raised (Update1) (Bloomberg)

2007-02-14 02:30 (New York) By Saikat Chatterjee Feb. 14 (Bloomberg) -- Unitech Ltd., India's largest real- estate developer by value, and other property stocks fell on concern mortgage rates may rise after the central bank yesterday increased the cash reserve limit for banks. Unitech fell for a fifth day, its longest losing streak since Dec. 21. The shares fell 10 percent to 373 rupees at 12:40 p.m. on the Bombay Stock Exchange. Parsvnath Developers Ltd., a builder of houses and malls, shed 2.8 percent to 290 rupees. Ansal Properties & Infrastructure Ltd. declined 5 percent to 672.45 rupees. Starting March 3, banks must keep cash equivalent to 6 percent of deposits, compared with 5.5 percent at present, the central bank said last evening. The measure, which will drain as much as 140 billion rupees ($3.2 billion) from banks, is aimed at containing inflation, the Reserve Bank of India said. ``The cash reserve ratio hikes by the Reserve Bank of India further boosts the likelihood of an increase in home-loan rates,'' Suhas Rema Harinarayanan, an analyst with UBS Securities India Pvt., said in a note to clients yesterday. State Bank of India, India's biggest lender, expects lending and deposit rates to rise following the cash limit increase, T.S. Bhattacharya, managing director of the bank, said yesterday. Higher mortgage rates may crimp demand for homes. ICICI Bank Ltd., India's biggest lender to consumers, plans to increase its deposit and lending rates, V. Vaidyanathan, an executive director, said today. Mumbai-based ICICI from Feb. 9 raised its benchmark lending rate by 1 percentage point to 14.75 percent, the second increase since December. ``The low interest rates had been a big driver for the 46 percent compound annual growth rate in disbursements of home loans over the past five years and the consequent near-80 percent increase in property prices in the past two years,'' Harinarayanan said.

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