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Wait a second. The average hedge funds is underperforming the SP500 index every year and by important returns? How are they still in business?
Diversification.
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> That's if you have one trade per year. How would you model this if you have 25 monkeys throwing, say, 300 darts at the board per day, for every day that the market is open (252 days), for five years? If the data is reported on a yearly basis then it's pretty much the same thing.
No it isn't, because each firm doesn't have a 50% chance of beating the market each year. Unless you're postulating that that is the case , it's not at all the same. I can quibble about the odds of each individual trade resulting in profit or less being binary, but for the sake of argument it'll do. But a 50% chance of beating the market each year isn't supported by anything. The grouping of data reporting doesn't su…
Strategy B: buy two random stocks.
If the expected payoffs were mathematically different then you'd have an arbitrage opportunity. Then apply induction.
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Heh, it's like that scam where you email people your predictions for who will win each football game for a particular team, where different groups get different winners. Each week some of the emails are right and some are wrong. After six weeks, 1.5% of your original folks will have seen six correct predictions, at which point you ask them for $1000 to see the 7th prediction which they are likely to pay for since "yo…
Hah, that's excellent! I'd never heard of that specific trick, but survivor bias does seem like one of the best ways to fool scam-aware people into trusting you.
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Hah, that's excellent! I'd never heard of that specific trick, but survivor bias does seem like one of the best ways to fool scam-aware people into trusting you.
I had a b-school class do a similar exercise, in the context of the debate between passively and actively managed funds. Everyone in the class was asked to stand up, pull out a coin and flip it. If you flipped tails you sat down. Then the remaining students flipped again, repeating until there was only one person left standing. At which point the professor "interviewed" the student, asking what her method was and how…
Was disappointed because title is misleading; I had hoped the fund was using actual Algae (i.e. computation in biological medium) to produce market decisions. Instead it is just biologists that are creating algos with their existing machine-learning knowledge. Apparently deep-learning and algae are the same thing.
I hoped that the fund was investing in companies producing GMO algae to solve large problems: carbon sequestration, energy production, toxin remediation, etc.
Wait a second. The average hedge funds is underperforming the SP500 index every year and by important returns? How are they still in business?
Also, not sure about hedge funds, but alot of mutual funds exist with a specific focus - one country, sector, asset class, etc. They try to do well within that category...
Just because the 'average' does worse, doesn't mean there aren't a few that do far better if you pick the right one..
Whether you think it is good to invest in that sector over the short or long run and why is up to you based on your portfolio and expectations for the market over the holding period..
As others have said - diversification.
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This is essentially a certain type of cognitive bias I think (halo effect?), where people take someone's high skill or talent in one area and assume it carries to another field. For example, assuming a chess grandmaster will be good at business strategy, or a great mathematician an automatically great engineer. These examples are convaluted but anecdotally I've seen it in action in recruiting. Also 'the map is not th…
I don't think the cognitive bias you're describing matches this scenario very well, because that bias appears to result when people don't acknowledge specialization versus overall intelligence. Your first example seems like it maps well to that cognitive bias - someone assumes that a chess grandmaster has catch-all capability because they demonstrated expertise in one area, and then they flare out in an orthogonal ar…