No. of Recommendations: 56
May, 2006

What is MI? part 6 (of 6): Further

---- Further
Book club
Is there further reading on the boards I can do, to get a background on Mechanical Investing?


Book Club

What Works On Wall Street, O'Shaughnessy
The link is to a newer revised edition. Older editions of this book are a big part of the foundation of what we do here.

Market Wizards, Schwager

The New Market Wizards, Schwager

Stock Market Wizards, Schwager

These books apply mostly to the futures trader; are less applicable to the MI stock trader. Yet the essays are fascinating, and the discussions about developing and following “trading systems” apply directly to us. Plus these books have Larry Hite's great soundbite, “If you don't manage the risk, they will carry you out.” The stock book is, to my mind, the weakest of the three; but it's still good.

The Intelligent Investor, Graham
C'mon, at least be aware of this book.

Trouncing the Dow, Lee
Lee posts at TMF under the username dowbuys. He's the inventor of the Benchmark Investing method, and there's a board here devoted to that. Backtests are a little skimpy compared to the MI backtests on VL screens, but some do exist and I understand more are in the works.

When Genius Failed, Lowenstein
Backtesting and system trading CAN'T go wrong. Right? Another often-recommended book on the same events is Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It, Dunbar . This second book places the LTCM saga in a historical context: “more technical than 'When Genius Failed,' this book gives the reader lots of background material on the theory behind what Long-Term was doing.”

Fooled by Randomness, Taleb
One Zon editorial review calls this a “rambling intellectual discourse”; but not many books are written by guys who are a professional trader and a mathematics professor. A Zon user writes in his review, “It is a book of epistemology, the theory of knowledge, as applied to life and the markets. This book questions the limit of knowledge, and then explores how one can exploit the markets despite this limit and how not to be destroyed by the uncertainty. If this review makes it sound too much like a textbook on the Philosophy of Statistical Methods, I apologize. Taleb does not speak as a ivory tower academic professor of finance, but as a practitioner, a hardened hedge fund manager who has survived the trenches.” Interesting implications for constructing investment strategies from backtest results.

Options As A Strategic Investment, MacMillan
It's the bible on the mechanics and technical aspects of options. Not really readable, this is a reference work. The reference work. Link is to a newer 2001 edition. He wrote another book, MacMillan On Options, which is more accessible and discusses strategies to use. That one might serve as a better starting point.

Two other books on options often get a mention: Option Pricing and Volatility by Natenberg, and LEAPS by Roth. But you should probably start with one of the MacMillans.

Contrarian Investment Strategies : The Next Generation, Dreman
A hard-nosed quantitative examination of stock selection. Might help wean a risk junkie from their momentum high.

How To Make Money In Stocks, O'Neil
First published in 1988; the link is to a newer (2002) edition. Great discussion of how momentum works in stock investing; also a mostly-mechanical stock-picking system (“mostly”: there's some use of pattern-reading on stock charts). O'Neil is the publisher of Investor's Business Daily. I wouldn't rely on O'Neil's CANSLIM system myself, at least not solely: seems to me the trader would need to be pretty plugged-in to the market to supply the extra bit of knowledge that would make this work. But a number of traders seem to have used it with great success. Anyway, the book's discussion of momentum is worth reading.

Winning on Wall Street, Zweig
Zweig authored a stock screen, which is delivered with AAII's SIPro software: they report it as their best performing screen over the period 1998-2005 (40%+ CAGR). Zweig has stuff to say about market timing, presenting a model based on interest rates and other criteria known to affect the stock market.

More book recommendations:

My Favorite Investment Books - 5 Stars, KP # 13619 4/12/2002

Stock Market Wizards Book et. al., KP # 13627 4/16/2002

My Investment Library - The List and The Ratings, KP # 13659 4/24/2002

Other reading recommendations

Throw your Wade Cook books away. Trash them! Don't donate them, because then someone might read them by accident.


Is there further reading on the boards I can do, to get a background on Mechanical Investing?

Dude. You familiar with the phrase, “the tip of the iceberg”?

First you should be aware that there's an awesome search
tool, for finding stuff on the MI and related boards:

There's a Foolish Workshop board, which is considered the newbie forum:

This is the place to ask questions like, “How do I calculate GSD,” etc.

Synchronicity wrote a “What is Mechanical Investing?” article for the workshop back in 1999:

Elann wrote an excellent Foolish Workshop FAQ in 2001:

Elan's FAQ links some pieces of an MI Guide by LAPropDoc, from 2000 and earlier:

“A more comprehensive and very well written Guide to New Fools was created by LAPropDoc”

Workshop Articles By Subject - Part 1 MI # 144020 4/30/2003
Mechanical Investing: What is it?

It's been inactive for a while, but LAPropDoc also used to run a board called Doc's Guide to Mechanical Invest[ing]. This is worth browsing.

In particular, Doc wrote and re-wrote several versions of
chapters for a Guide to MI. These are excellent reading.

What is MI 2002: and

New to Mechanical Investing & the MI Community 2002

Intro to screens:

Intro to math:

Screen taxonomy:

On blending:



What defines “mechanical”:

Screen macros, part1:

Screen macros, part 2:

Screen macros, part 3:

One of Doc's Guide-posts has a list of links, which are worth browsing:

06/13/2000 FW “Is Mechanical Investing Right For You?” by Todd Beaird
04/27/2000 FW “Intro to Mechanical Investing” by Todd Beaird
05/27/1999 FW “What is Mechanical Investing?” by Todd Beaird
11/16/1999 FW “Anecdotal Investing” by Todd Beaird
Discusses some of the thoughts behind mechanical investing
11/02/1999 FW “It's Good to be an Investor Today” by Moe Chernick
08/30/1999 DD “Mechanical Investing” by Ann Coleman
Primarily discusses F4 and BSP
09/02/1999 DD “Mechanical Investing, Part 2” by Ann Coleman
09/03/1999 DD “Mechanical Investing, Part 3” by Ann Coleman
09/30/1998 FW “I Screen, You Screen” by Ethan Haskel
09/16/1999 FW “Workshop Returns: Behind the Numbers” by Jim Stevens
10/05/1998 FW “Fifth Grader or Skilled Trader?” by Jim Stevens

Beyond the MI boards:

We've mentioned the Benchmark Investing board. BI is a mechanical stock-picking strategy emphasizing value, developed in the book Trouncing the Dow.

Likewise we've mentioned the BMW board:


The Hidden Gems premium service at TMF has a board, Screening for Gems, that features a mechanical stock-picking strategy developed by mklein9 off of the SIPro dataset and backtested to 1997. Good stuff.

We've already mentioned Jamie Gritton's MI backtesting site for ValueLine- based screens:

and Keelix' MI backtesting site for SIPro-based screens:

The IBD WER Board is inactive now: it focused on stock screening using Investor's Business Daily's Weekend Review.

I'm a fan of AAII, The American Association of Individual Investors. They're the ones who publish SIPro. They track a large number of stock screens on their site.

Good luck!
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