An Algorithmic View of Vodafone and Verizon

NEW YORK (TheStreet) -- When you hear the word "algorithm" you might cringe at the thought of computer programs that have an impact on stock prices and have caused "flash crashes."

The fact is that the language of algorithms, which are the "operational brains" behind computer programs, can help businesses gather consumer information or expedite complex tasks in seconds.

Recently, I spoke with Dr. Richard Smith, the founder of RightWayTrader.com and TradeStops.com about the mathematics behind smart computer programs.

Smith went to school at the University of California at Berkeley (one of the nation's top schools in math) and received a Ph.D. in "mathematical systems theory." Through his own personal research and experience he's developed a passionate mission to put easy-to-use technology-based tools into the hands of individual investors and traders.

He knows that algorithms can be used for good purposes, like helping investors develop a simpler buy or sell discipline or to create an emotions-free exit strategy like the one he created with Trade Stops.

As Smith has mentioned to me several times in conversation, "We've all heard it before, 'You've got to cut your losses and let your winners ride.' The fact of investment experience is that it's absolutely true.

"More than any other single factor the individual investor is handicapped by the tendency to tolerate losses while nervously grabbing gains off the table early for fear of losing them."

By creating algorithms that override our human tendencies to tolerate losses or not letting our profitable trades run, computer programmers and mathematicians like Smith have protected us from our human nature's tendency to be self-deceiving.

This enables us to work our own style of investment planning and at the same time make sure that we limits losses and maximizes gains. Remember this the next time someone badmouths algorithms.

Speaking of algorithms, I was recently impressed by an article in The Wall Street Journal titled "Automatons Get Creative" that illustrated many of the comments Smith made and demonstrates some of the uses and misuses of algorithms.

One poignant example the article pointed out had to do with Vodafone (VOD) , the European telecom company.