The Hindu Business Line : Blend creativity with calculation

Experts talk endlessly about financials and price-earnings, and yet stock prices may often fly in the face of their analyses. Why so? Because "stock markets aren't about the future of a company nearly as much as people would like to believe," explains Garry Kasparov in `How Life Imitates Chess' (www.oxfordbookstore.com).

Writing in summer 2006, he cites Google's share price at `an astronomical $387' (down from over $450 at the start of the year), and market capitalisation at over $120 billion. "So, according to the markets, Google is worth far more than the total value of every company in Chile ($65 billion)." A dubious assertion, notes Kasparov. For, "Chilean companies combined to create a GDP (gross domestic product) of $169 billion in 2004, while in 2005 Google had earnings of a few billion dollars."

Do the people who bought Google shares at $350 and pushed its market cap so high believe the company will ever earn that much money. "Of course not," says Kasparov. "Stock markets aren't about the future of a company nearly as much as people would like to believe. They are about the perception of a company now." Google's share traded beyond $471 on May 4, and `high target', on http://uk.finance.yahoo.com, is $615.

"Buyers jump in to make money in the short run off a hot company's current run of success. Google is worth $380, or any number, as long as people keep buying. The number is based on the buyer's profit motive and confidence, not the actual worth of the company," writes the chess wizard.

Theoretically, computers have an advantage over humans in evaluation, because the machines are immune to `games of perception', as get played out in the bourses. "Yet programs don't in fact play the market well because it is driven by `irrational' humans whose behaviour is unpredictable, even illogical - the same reason computers don't play poker well," says Kasparov.

Chess is not like the stock market, you may argue; the program is told how much the pieces are worth, and `with the value system in place, the computer does a fine job of counting material very quickly to decide the best move'. Alas, computer chess programs too have trouble with quality, and `the way material values change according to the position.' Kasparov avers that a Grandmaster "can find positions where the computer will come to an incorrect evaluation and exploit this weakness. A program might over-value rooks versus other pieces, or underestimate weaknesses around its king." Humans too are likewise fallible, `but we can quickly learn from our mistakes and even use them as traps'.

The stock market and the battlefield aren't `nearly as tidy' as the 64 squares of the chessboard, concedes the author. However, success in these fields also depends on the quality of our decisions, he asserts. Calculate, and at the same time, invoke imagination, advises Kasparov.

"It is often when we assume something is obvious and react hastily that we make a mistake. More often we should break the routine by doing more analysis, not less. These are the moments when your instincts tell you that there is something lurking below the surface, or that a critical juncture has been reached and deeper look is required."

Detect the key moments, urges the author. "If one of the branches in your analysis starts to show surprising results, good or bad, it's worth investing the time to find out what is going on... "

Terrific read before you take one more plunge into the markets.

Give brain the exercise it needs

How old are you? Wait, don't blurt out your age, because what counts is `how fit your brain is,' not the time on the calendar, says Tony Buzan in `Age-Proof Your Brain'. Your brain is a flexible living organism with an amazing capacity for change and development throughout your life, assures the author. The brain is `plastic', meaning `it can go on programming and reprogramming itself almost limitlessly'. And you can stay fit by giving brain the exercise it needs.

Researchers have found evidence of `neurogenesis': new nerve cells are created in certain parts of the brain, such as the hippocampus, throughout life! Learning can be a simple way to stir up the cells.

"Give your brain an input and its neuronal wiring will change and learn. Without an input, that wiring stays unchanged, or even withers," explains Buzan. "The great thing about learning is that the more you do, the easier it becomes. Eventually, some skills become so well learned that your conscious brain doesn't need to think about doing them at all."

A book that can help you control the most complex computer within!

http://BookPeek.blogspot.com