A Man Who Abandoned Value • Hacker News Board

Re: A Man Who Abandoned Value

#31

Post by Aunche » Wed, Mar 03, 2021, 7:47 AM UTC

smabie wrote: post #13

elefanten wrote: post #2

Seems like a case of survivorship bias. Unclear what this guy is doing that's particularly unique. He invested a lot in Amazon and Tesla, relatively early. Out of everyone investing in the time period, someone was bound to be holding the most of some of the stocks that do crazy things. Having Asperger's, starting as a CPA, not using value investing, reading Christensen... I doubt any of these are gonna shake up insti…

Using some simple math (and somewhat inaccurate math), let's calculate the chance of the null hypothesis being true: he has no skill and it is just luck, assuming 10% annualized volatility for the market and 8% annualized return. By my calculation, over the six year period, there's a 4.82e-18 chance that his returns are due to luck and the null hypothesis is true. Of course I'm simplifying a lot, but I think you get…

If you're able to tolerate an arbitrary amount of risk, you can potentially achieve absolutely absurd returns with very little skill. You just need to maximize your portfolio's volatility. Find the most volatile stock you can with an upcoming earnings announcement or other catalyst and invest all your money into it. If you didn't lose all your money, sell everything and invest all your money in another volatile stock with an upcoming catalyst. Rinse and repeat. This is how people win stock competitions.

Re: A Man Who Abandoned Value

#32

Post by jdmoreira » Wed, Mar 03, 2021, 7:54 AM UTC

vasco wrote: post #30

jdmoreira wrote: post #29

Ok, so he did well for a few years in a bull market. anyone can make money in a bull market. You just buy on hype and sell on higher hype. It’s called momentum trading. Call me when he beat the market for 40 years and I'll be impressed.

And in the game where "anyone could make money", they did the most of all the funds that were assessed. If that doesn't count for something, what does?

A lot of people made a lot of money just before the dot-com boom... And then they lost it all.

It’s trivial to make a lot of money short-term and he was just the best at it. Now if he is still having 200% returns after a full-cycle, now that’s impressive.

Re: A Man Who Abandoned Value

#33

Post by n4r9 » Wed, Mar 03, 2021, 8:02 AM UTC

robotresearcher wrote: post #23

smabie wrote: post #13

Earlier quoted context omitted.

Using some simple math (and somewhat inaccurate math), let's calculate the chance of the null hypothesis being true: he has no skill and it is just luck, assuming 10% annualized volatility for the market and 8% annualized return. By my calculation, over the six year period, there's a 4.82e-18 chance that his returns are due to luck and the null hypothesis is true. Of course I'm simplifying a lot, but I think you get…

You can do a similar calculation about a particular shuffled card deck.

Yes, or the lottery. It's extremely unlikely that a given person will win, but someone's gonna win.

Re: A Man Who Abandoned Value

#34

Post by DanielMcLaury » Wed, Mar 03, 2021, 8:11 AM UTC

"He took big, and early, stakes in both Amazon and Tesla — in 2012 and 2016, respectively."

Amazon was founded in 1994 and had its IPO in 1997 during the first dot com boom. Did they do any research for this article at all?

Re: A Man Who Abandoned Value

#35

Post by fnordian_slip » Wed, Mar 03, 2021, 8:12 AM UTC

smabie wrote: post #13

elefanten wrote: post #2

Seems like a case of survivorship bias. Unclear what this guy is doing that's particularly unique. He invested a lot in Amazon and Tesla, relatively early. Out of everyone investing in the time period, someone was bound to be holding the most of some of the stocks that do crazy things. Having Asperger's, starting as a CPA, not using value investing, reading Christensen... I doubt any of these are gonna shake up insti…

Using some simple math (and somewhat inaccurate math), let's calculate the chance of the null hypothesis being true: he has no skill and it is just luck, assuming 10% annualized volatility for the market and 8% annualized return. By my calculation, over the six year period, there's a 4.82e-18 chance that his returns are due to luck and the null hypothesis is true. Of course I'm simplifying a lot, but I think you get…

I don't understand you. Why do you dismiss survivorship bias and then do your math without that in mind?

If I read you correctly, you calculated "how likely is it that someone gets these results?". But accounting for survivorship bias, shouldn't it be "how likely is it that someone gets these results?" ?

Maybe I'm reading something wrong here, if so I would be obliged if you could elaborate.

Re: A Man Who Abandoned Value

#36

Post by kgwgk » Wed, Mar 03, 2021, 8:13 AM UTC

smabie wrote: post #13

elefanten wrote: post #2

Seems like a case of survivorship bias. Unclear what this guy is doing that's particularly unique. He invested a lot in Amazon and Tesla, relatively early. Out of everyone investing in the time period, someone was bound to be holding the most of some of the stocks that do crazy things. Having Asperger's, starting as a CPA, not using value investing, reading Christensen... I doubt any of these are gonna shake up insti…

Using some simple math (and somewhat inaccurate math), let's calculate the chance of the null hypothesis being true: he has no skill and it is just luck, assuming 10% annualized volatility for the market and 8% annualized return. By my calculation, over the six year period, there's a 4.82e-18 chance that his returns are due to luck and the null hypothesis is true. Of course I'm simplifying a lot, but I think you get…

What do the volatility and return of the market have to do with anything?

Are you calculating the probability that he did achieve these returns by luck timing the market? That's obviously not what he did.

Picking and holding a stock that did extremely well by over the period is not a one in a quintillion event.

Re: A Man Who Abandoned Value

#37

Post by froh » Wed, Mar 03, 2021, 8:17 AM UTC

Aunche wrote: post #31

smabie wrote: post #13

Earlier quoted context omitted.

Using some simple math (and somewhat inaccurate math), let's calculate the chance of the null hypothesis being true: he has no skill and it is just luck, assuming 10% annualized volatility for the market and 8% annualized return. By my calculation, over the six year period, there's a 4.82e-18 chance that his returns are due to luck and the null hypothesis is true. Of course I'm simplifying a lot, but I think you get…

If you're able to tolerate an arbitrary amount of risk, you can potentially achieve absolutely absurd returns with very little skill. You just need to maximize your portfolio's volatility. Find the most volatile stock you can with an upcoming earnings announcement or other catalyst and invest all your money into it. If you didn't lose all your money, sell everything and invest all your money in another volatile stock…

isn't this also how people loose stock competitions?

Re: A Man Who Abandoned Value

#38

Post by DanielMcLaury » Wed, Mar 03, 2021, 8:28 AM UTC

smabie wrote: post #13

elefanten wrote: post #2

Seems like a case of survivorship bias. Unclear what this guy is doing that's particularly unique. He invested a lot in Amazon and Tesla, relatively early. Out of everyone investing in the time period, someone was bound to be holding the most of some of the stocks that do crazy things. Having Asperger's, starting as a CPA, not using value investing, reading Christensen... I doubt any of these are gonna shake up insti…

Using some simple math (and somewhat inaccurate math), let's calculate the chance of the null hypothesis being true: he has no skill and it is just luck, assuming 10% annualized volatility for the market and 8% annualized return. By my calculation, over the six year period, there's a 4.82e-18 chance that his returns are due to luck and the null hypothesis is true. Of course I'm simplifying a lot, but I think you get…

From the article:

"Its long/short equity fund gained an astounding 274 percent, thanks in large part to a 700 percent surge in the price of Tesla’s stock, which accounted for 37 percent of Worm’s publicly traded equities portfolio at the end of the third quarter."

This means that, outside of his TSLA position, the rest of his portfolio made about 25%. In a normal year that'd be impressive, but 2020 was a year where SPY was up 15% and there was insane volatility.

So basically this guy gets decent-to-good performance on 3/5 of his portfolio and put the other 2/5 into a blind gamble which turned out to pay off. The chances of that happening by luck aren't "4.82e-18."

Re: A Man Who Abandoned Value

#39

Post by WA » Wed, Mar 03, 2021, 8:44 AM UTC

Yes yes, survivorship bias, but the problem is actually interesting in several aspects:

1. On an individual level, it's impossible to distinguish between survivorship bias and doing things right. If you are the surviving one, did you do things differently or did you just get lucky? In a coin-toss competition, the answer is obvious. When it comes to stocks, it's not.

Because:

2. The general (academic) consensus to differentiate between luck and skill when it comes to investing is: Can you be profitable for a long period of time? But do you really need to prove yourself over and over that you have the skill? What if you had the skill only once, to predict one certain event and have tremendous gains with it? Apparently, this is considered "luck" and not "skill" when it comes to investing. Which I find odd.

Add the nonlinear utility of money: Your first million makes the biggest impact on your life, especially if you earn it early in life. Buying an ETF sets you up for a good retirement (probably, maybe), but the GME stock picking YOLO might put you on a different trajectory.

3. When it comes to finance and investing, we all know the academic view: passive investing / buy & hold is king, you can't predict the winners. All true of course, but the problem is: there is no resolution to this. You can say that, in hindsight, buy & hold returned X% on average over the last 50 years, but have to warn that "past performance is no indication for future performance". And ultimately, you can calculate your true performance only if you realize profits to do something with it in life or if you are about to die.

So, on an individual level, you have two choices:

- Buy and hold a passive index fund and hope that the performance of the last X years is indicative for the future performance, because that's how the stock market works (or whatever).

- Expose yourself to luck/chance/positive black swans by doing some skilled or unskilled stock picking that has potential to put you on another trajectory in life.

Re: A Man Who Abandoned Value

#40

Post by Aunche » Wed, Mar 03, 2021, 8:55 AM UTC

froh wrote: post #37

Aunche wrote: post #31

Earlier quoted context omitted.

If you're able to tolerate an arbitrary amount of risk, you can potentially achieve absolutely absurd returns with very little skill. You just need to maximize your portfolio's volatility. Find the most volatile stock you can with an upcoming earnings announcement or other catalyst and invest all your money into it. If you didn't lose all your money, sell everything and invest all your money in another volatile stock…

isn't this also how people loose stock competitions?

Losing doesn't cost anything because you aren't playing with real money. You get the same payout from -100% returns as you would with 20% returns.