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A Man Who Abandoned Value

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Re: A Man Who Abandoned Value

#61

Post by smabie »

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.

Sure, all I'm saying it is much more likely than not that his returns are due to skill.

Re: A Man Who Abandoned Value

#62

Post by smabie »

kgwgk wrote: post #36
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…

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.

you look at a normal distribution of returns using SPY mean return and SPY stdev as the parameters and then calculate the chance of his returns or better 6 years in a row.

There's a lot of things wrong with my calculation, but it was illustrative of how P < 0.05 in this case, no matter how you calculate it.

Re: A Man Who Abandoned Value

#63

Post by kgwgk »

smabie wrote: post #62
kgwgk wrote: post #36

Earlier quoted context omitted.

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.

you look at a normal distribution of returns using SPY mean return and SPY stdev as the parameters and then calculate the chance of his returns or better 6 years in a row. There's a lot of things wrong with my calculation, but it was illustrative of how P < 0.05 in this case, no matter how you calculate it.

We agree at least that there are a lot of things wrong with your calculation.

Re: A Man Who Abandoned Value

#64

Post by [deleted] »

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…

[deleted]

Re: A Man Who Abandoned Value

#65

Post by billforsternz »

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…

You don't explain how you calculated that number but it seems absurd (presented with absurd over precision). For example, I would be astonished if there aren't individuals, probably 10s or 100s or even 1000s of individuals who followed an "all in on Tesla" strategy that would generate these types of returns. That suggests an absolute lower bound around 1e-8 (very conservatively) before doing any serious analysis.

Re: A Man Who Abandoned Value

#66

Post by [deleted] »

billforsternz wrote: post #65
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 don't explain how you calculated that number but it seems absurd (presented with absurd over precision). For example, I would be astonished if there aren't individuals, probably 10s or 100s or even 1000s of individuals who followed an "all in on Tesla" strategy that would generate these types of returns. That suggests an absolute lower bound around 1e-8 (very conservatively) before doing any serious analysis.

[deleted]

Re: A Man Who Abandoned Value

#67

Post by smabie »

kgwgk wrote: post #63
smabie wrote: post #62

Earlier quoted context omitted.

you look at a normal distribution of returns using SPY mean return and SPY stdev as the parameters and then calculate the chance of his returns or better 6 years in a row. There's a lot of things wrong with my calculation, but it was illustrative of how P < 0.05 in this case, no matter how you calculate it.

We agree at least that there are a lot of things wrong with your calculation.

Null hypothesis is: he is not generating alpha given the assumption the underlying distribution of his returns are the same as SPY. How would you calculate the chance of him generating alpha using only the fact (and no other data) that he generated an annualized return of ~37% (iirc) over a six year period?

Re: A Man Who Abandoned Value

#68

Post by kgwgk »

smabie wrote: post #67
kgwgk wrote: post #63

Earlier quoted context omitted.

We agree at least that there are a lot of things wrong with your calculation.

Null hypothesis is: he is not generating alpha given the assumption the underlying distribution of his returns are the same as SPY. How would you calculate the chance of him generating alpha using only the fact (and no other data) that he generated an annualized return of ~37% (iirc) over a six year period?

So you’ve rejected the hypothesis that his portfolio has the same distribution of returns as the SPY. Looks reasonable, because his portfolio does not track the S&P 500. Congratulations!

The QQQ (Nasdaq 100) also generates alpha without any doubt then, as does the SPUU (leveraged S&P 500).

Re: A Man Who Abandoned Value

#69

Post by ramblerman »

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…

You are setting up the experiment as if we took one guy and decided to follow him for 6 years to see if he could beat the market.

Instead a reporter found one out of a couple of million investors who did well the last 6 years and decided to interview him.

I don't see why you feel talking about survivorship bias is unsound in this case.

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