Remind me to put my money in Citadel and not a16z.
“Buy and Hold” No More: The Resurgence of Active Trading
191–200 of 327 posts
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#192Earlier quoted context omitted.
So I've been trying to work this out. Previously I understood the idea "The passives are simply the average of the actives". So even if you had 99% passive, so long as the actives were doing their homework the system would work, but as you said you need to watch for exploits. But then I had the question: When the world has gone passive, who is left as an active investor? 1. Wallstreetbets users who do poorly on avera…
Think of it this way: if there are too many "free riders" in the form of passive investors, then ... it will become easier for active investors to make money, and beat the market, and more people will actively invest their money (or invest in actively managed funds).
An equilibrium exists but expected returns of active and passive are unknown. Would it reach equilibrium or could there be a crisis due to passive allocating funds poorly.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#193I am a hedge fund guy who invests his own $$$$ passively so make of this what you will. There will always be a mix of active and passive. Fundamentally - passive only works when it follows smart active. Actives do expensive research and trade against each other to arrive at the consensus price. Passives trade at that price for "free." Since both get the same price on average but passives incur no cost, they win on av…
So I've been trying to work this out. Previously I understood the idea "The passives are simply the average of the actives". So even if you had 99% passive, so long as the actives were doing their homework the system would work, but as you said you need to watch for exploits. But then I had the question: When the world has gone passive, who is left as an active investor? 1. Wallstreetbets users who do poorly on avera…
> 2. Highly skilled Hedgefunds like Medallion who do great on average, but they are small
Medallion usually does well, but hedge funds underperformed in the 2010's.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#194Earlier quoted context omitted.
Warren Buffett's investing performance can be explained by an intuitive understanding of known market factors (the French-Fama five-factor asset pricing model, etc.) [1]. The Medallion fund is a whole other kettle of fish. Medallion uses extremely sophisticated models which took Jim Simons and his team of math wizards more than a decade to figure out, using vast amounts of historical data and computation. The fact th…
> In 2019, 71% of actively managed funds lagged behind their benchmark according to the S&P. Yes, you have a market where participants trade against each other, and you discover that the average participant in the market does not "beat the market". That should be obvious. The question in dispute is whether _anyone_ can beat the market, and there's a mountain of evidence that certain people/funds beat the market year…
Yes, you can beat the market. But anyone cannot beat the market.
This is a problem for retail investors. Studies such as this one [1] have shown that the past performance of an actively managed fund does not predict its future returns. In other words, while there are certainly actively managed funds that beat the market in some years, a retail investor picking a mutual fund based on past performance is likely to be disappointed.
So how do you pick the fund that will give you high returns? Turns out this is exactly the same problem with individual stock picking, but instead of trying to pick winning stocks on the stock market, you are trying to pick winning managers in the mutual fund business. And your success in doing that ultimately comes down to chance.
[1] https://insights.som.yale.edu/insights/does-mutual-fund-s-pa...
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#195I am a hedge fund guy who invests his own $$$$ passively so make of this what you will. There will always be a mix of active and passive. Fundamentally - passive only works when it follows smart active. Actives do expensive research and trade against each other to arrive at the consensus price. Passives trade at that price for "free." Since both get the same price on average but passives incur no cost, they win on av…
> Imagine 100% is passive. That means any stock in an index will be bought tomorrow and forever regardless of price. I could exploit that in a ton of ways. For example, do a "squeeze" (think of the recent GME short squeeze but in reverse.) With more and more assets going into passive funds, when might we actually see them owning such large fractions of companies that a play like this is possible? Google suggests that…
If you’re holding then you’re neither buying nor selling, and so you don’t participate in setting the price at all, until the day you sell. Only the people (and machines) that are trading have any say. So it seems like it wouldn’t be the percentage of free-riders that’s an issue, but rather that the size of the active market shouldn’t be too small.
Index funds need to rebalance so they’re not just holding, but it seems like for passive investors, they approximate holding? Maybe the rebalancing would tend to exaggerate the effects of active trading?
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#196Earlier quoted context omitted.
2020, Renaissance funds' performance: Closed to outsiders: Medallion, +76% Open to outsiders: RIEF, -23% RIDA, -34%
> 2020, Renaissance funds' performance ... Since this is in reply to me, let me ask, what's the implication here? The tone of your post sounds like you disagree with me, but it's not clear what exactly you disagree with? Grandparent claimed that no-one can beat the market. I said that Renaissance Medallion Fund beats the market. Then you post a single-year performance of +76%, which is a really good performance for 2…
I don't disagree with you that individuals can outperform the market.
I do think it's worth pointing out that that doesn't mean that the average retail investor will generally outperform the market, even if they're sophisticated enough to have even heard of Renaissance.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#197Earlier quoted context omitted.
> demographics is working against asset values in the next twenty years or so. As someone who is about half way towards retirement, how is it best to work with this? My future retirement income seems to be mostly dependant on having the right selection of investments for my pension account to grow in time for when I stop working. It's currently split between a few low cost, broad indexes. But if we expect asset value…
It sounds like you want an annuity. Your returns will likely be lower, with the issuer taking the risk (and getting the higher rewards), but you return is guaranteed and the issuer's is not.
If assets perform poorly then how will the annuity be funded?
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#198Earlier quoted context omitted.
Your active strategies are not against passive traders, they're against other active traders. You can't create one of those differential bets trading only with index funds as they won't take the other side of the unbalanced position you want as they're obliged to follow the index. In your scenarios you'd be winning against some other active investor taking the other side of the bet. Active as a whole can only beat pa…
I'm 95% passive, but I think a place where active strategy was observed was with TSLA. actives knew it was on it's way to the index and piled on into it, once it got into index, it got bid up some more and then actives cashed out. passives didn't enjoy the ride up, but suffered the cost of the ride down.
This is what "getting priced-in" looks like. There are strategies around buying shares of companies where their acquisition has been announced, but hasn't closed. Buying is basically a bet that everything goes smoothly.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#199The only issue I take with this article is their seemingly blase take on the risky investing behavior of Gen Z. Sure, if that's the lay of the land then use it to your advantage. But it seems a bit predatory. Risky activities tend to hurt more investors than they help, and lead to a small number of big winners and many losers. You can't just increase risk and increase reward for everyone. Regarding the predicament Ge…
> Regarding the predicament Gen Z is in, just remember that the older generations - one of which is very large - will need to sell their assets at some point. Probably not all of their assets though. Most people don’t get a death date after 65. I guess if people want to blow most of it before 80 that might make sense but you never know when you’re going to go. Still need to hedge against inflation.
Also a significant amount of assets are owned by the wealthy and won't go towards retirement.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#200Earlier quoted context omitted.
Yes, just like there are individual stocks that beat the market. How do you pick them?
> Yes, just like there are individual stocks that beat the market. How do you pick them? The same way you picked your passive index fund: look at 20-30+ years of data. Unfortunately, VTI, VT, VOO all underperform the top hedge funds, when evaluated over 20 years (risk adjusted return, downside deviation, and absolute return). I’d go further back but VTI was created in 2001 whereas the hedge funds were created in 1980…
I picked S&P because it's one of a handful of widely reported indices and it was created roughly in the same era as the original vanguard index fund, not by cherry-picking data.
Your statement that major index funds all underperform the top hedge funds is tautological, of course the ones that beat the averages are the top funds. What I'm genuinely curious is: how many hedge funds were there in 2001 and how would you identify the top ones?