It's a beautiful day in the neighborhood!

P123 is clearly a machine learning tool. After all, a computer is telling me what stocks to buy on Monday morning. Stocks I have never heard of before.

I have thought P123’s ranking system was kind of like a nonparametric regression. It is if you look at the rank performance. Well, kind of. But it isn’t like there is an OLS or sum of squares output (or the nonparametric equivalent). But it is kind of like that.

You may use your own heuristics like discounted cash flow to guide you in your quest for the better neighborhoods. For sure P123 does not have the computer resources to run an exhaustive search to find the k-nearest-neighbors with the best returns. This is especially true if you were to hope that P123 had the resources to do feature selection for you: LOL! So you really have no choice other than to look for rational factors: even if you wanted to turn all of it over to the machines.

So, to be sure, finding factors that make sense is important. But this is a long topic and there are others far more qualified than me to start a forum on this.

It is also mathematically correct that if you are using the ranking system alone and picking k stocks in a sim or port you are defining k-nearest-neighbors. K-nearest-neighbors (using euclidian distance) in a hyperplane. Or if you have a broader imagination and aren’t a knuckle dragger from the south (like me) you might call it a hypercube or hyperspace.

Do your factor research on the weekend to develop your system—it is important I think. But come Monday morning, I hope it is a beautiful day in the (k-n-n) neighborhood you have selected!

The practical significance of this? There are other machine learning tools with both advantages and disadvantages that can be looked at. And I think there is something to be said for just wanting to better understand a tool that I use everyday and why it works. A machine learning tool called P123.

It could be argued whether any of this leads to any answers. But, for sure, I have better questions like: "why to people keep picking a k of 5 (as in five stock sims and ports).

For younger or international P123 members, “It’s a beautiful day in the neighborhood” is a song from a TV show called Mister Rogers’ Neighborhood. Soon to be released as a movie starring Tom Hanks. And yes, I agree that the song is pretty cheesy if not a little creepy. I do think k-n-n is a serious topic as its application is a serious source of revenue for me.

-Jim