Hello everyone,
How extensively should I know financial modeling to make wise investing/trading decisions, and how do I learn modeling to a very good extent.
it will be really helpful if someone can suggest me some resources to learn financial modeling
anyone?
Depends on what you call as a model and what is your end goal.
Here is a dumb model that buy coffee can stocks at the start of each month
This is the dumbest model possible. It just takes your allocated cap and divides it by number of stocks and buy it.
And You have learnt about all of it by the time you finish reading this.
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no not a model like this, im saying building a model to predict a company’s future growth, revenue, profits,etc and how they will do overall
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Are you serious? 
- Companies cannot do that accurately for themselves.
- Fund houses / Professional Managers cannot do that reliably over the long-term.
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it doesn’t have to be accurate, the use of a model is to give me a prediction or an estimate which i can apply to my framework and build a reliable stratergy.
No No.
In college, I had a friend who would travel in bike having high marijuana and will just hit some other bike or car. So, based on that, You can just derive that the probability is high for him hitting car or bike.
Now when he is not taking marijuance, that prob become less. So that’s a data point.
There are many proablistic models that will give a probablistic estimate and list of lots of outputs like lets say 40-50…
Now assume there are 10 stocks. if 2 performs too well, that will get our cost out…
Anyways -
if you want simple things, you can start with time series models like ARIMA models (Time series models, such as ARIMA (AutoRegressive Integrated Moving Average), are used to forecast future data points by analyzing the patterns within a series of data over time. These models are particularly useful for predicting sales, stock prices, and economic trends.
) and linear regression models (These models predict a company’s future outcomes by estimating linear relationships between independent variables (such as time, investment, market size) and dependent variables (like revenue, profits). They are straightforward)
but later you may want to check out ml models like random forest or gradient boosting ones.
like random forest is a very interesting one.
i once coded (its 2 hour easy thing to do, just look for youtube video) a face detection method to scan arun ketley’s face when he gave speech (long ago) and assign value to it based on his past speech and see the impact on overall index. ( i ended nowhere but i am giving you idea)
for paytm you need decision tree models (Decision trees split the data into branches to predict an outcome, which can be useful for making financial forecasts or evaluating business decisions under uncertainty.)
like
what are the prob of ED summoning vijay dude.
or, what is the prob of mukesh just buy it
or, what is the prob of paytm gets this that…
lots of variable. lots of chance of make mistake because there are lots of assumptions. wrote in slight more details if you want to read - Probablistic Decision Tree Example - Python - Unofficed
Please explore / deep-dive on the following ideas / keywords -
- Charlie Munger’s Mental Models
- Warren Buffett’s Discounted Cash Flow
This is for investing only.
Trading is a totally different ball game. And the two (trading/investing) are mutually exclusive - more often than not.
wow thanks a lot for the advice, I’ll definitely look into whatever you have told and if i have any doubts on certain aspects of it can i reach out to you via dm?
yes i understand the difference, I wanted an answer for both
thanks a lot will look into those models