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A Man Who Abandoned Value

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Re: A Man Who Abandoned Value

#41

Post by praptak »

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?

Yeah, but it's kind of a Pascal's Wager:

Normal investment: maximize expected profit

Competition investment: maximize the probability of your profit being the best in the pool

Normal strategy: 100% chance of losing the competition. Extremely risky strategy: 99.99% of losing - who cares by how much? There's this 0.01% of winning and it's all that matters.

Re: A Man Who Abandoned Value

#42

Post by kuu »

fnordian_slip wrote: post #35
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…

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.

Didn't you write the same, twice?

Re: A Man Who Abandoned Value

#43

Post by OJFord »

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.

For a fund like this, more volatility = more opportunities to make money. Doing 25% when the benchmark does 15% is less impressive than when it does 10, 5, or is down over the same period.

(Not GP.)

Re: A Man Who Abandoned Value

#44

Post by Clewza313 »

DanielMcLaury wrote: post #34

"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?

> Today the online juggernaut is the most conventional — and most popular — hedge fund stock in the world, but when Alsin first invested in it the smart money was skeptical. After all, the company wasn’t profitable.

If you look at AMZN's stock price, he timed it pretty well: he presumably bought in around $200 before it really started taking off. If he had bought in 5 years earlier, that would have netted "only" an extra 100%.

Re: A Man Who Abandoned Value

#45

Post by praptak »

Aunche wrote: post #40
froh wrote: post #37

Earlier quoted context omitted.

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.

The argument even applies to competitions where you play with your own real money. Any non-zero prize moves the slider a bit towards the riskier strategies.

Re: A Man Who Abandoned Value

#46

Post by [deleted] »

TooKool4This wrote: post #25
slibhb wrote: post #21

Earlier quoted context omitted.

Unlikely things happen all the time. If he lost money, this article wouldn't exist. Also, my disdain for this guy is not due to finance. It's due to his investment strategy being a Seinfeld episode: > I just totally gave up and said, "I'm going to do the exact opposite."

> Unlikely things happen all the time. If he lost money, this article wouldn’t exist. Exactly! The person you replied to did the right calculation but completely threw away the context. The argument here is akin to p-hacking where all the investors in the world are the experiments and this article merely picked the one that got lucky. Different scenario but similar argument, I roll a large set of dice, 5x rolls each…

[deleted]

Re: A Man Who Abandoned Value

#47

Post by kgwgk »

OJFord wrote: post #43
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.

For a fund like this, more volatility = more opportunities to make money. Doing 25% when the benchmark does 15% is less impressive than when it does 10, 5, or is down over the same period. (Not GP.)

But what matters is not the volatility of the market as much as the cross-sectional dispersion of stocks. If correlation was high and all the stocks hade beta one and were almost identical to the market there would be little opportunity for a stock-picking fund like this, whatever the volatility of the market.

Re: A Man Who Abandoned Value

#48

Post by sushibowl »

kuu wrote: post #42
fnordian_slip wrote: post #35

Earlier quoted context omitted.

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.

Didn't you write the same, twice?

The first statement should be read as "what are the chances that this particular person got results this good?"

The second statement should be read as "out of all investors active in the market during this period, what are the chances that one of them got results this good?"

Re: A Man Who Abandoned Value

#49

Post by OJFord »

kgwgk wrote: post #47
OJFord wrote: post #43

Earlier quoted context omitted.

For a fund like this, more volatility = more opportunities to make money. Doing 25% when the benchmark does 15% is less impressive than when it does 10, 5, or is down over the same period. (Not GP.)

But what matters is not the volatility of the market as much as the cross-sectional dispersion of stocks. If correlation was high and all the stocks hade beta one and were almost identical to the market there would be little opportunity for a stock-picking fund like this, whatever the volatility of the market.

The market's only moved in one direction over the period; the fund can make money on moves in both directions.

So the more volatile (within a period) the more money making moves there.

If this is the benchmark:

     _   _/\  /
    / \_/   \/
at a dollar per slash, it's up $2. A fund that bet (and realised) a $1 per slash made $8.

(Even with only long bets, they could make $5.)

Re: A Man Who Abandoned Value

#50

Post by kgwgk »

OJFord wrote: post #49
kgwgk wrote: post #47

Earlier quoted context omitted.

But what matters is not the volatility of the market as much as the cross-sectional dispersion of stocks. If correlation was high and all the stocks hade beta one and were almost identical to the market there would be little opportunity for a stock-picking fund like this, whatever the volatility of the market.

The market's only moved in one direction over the period; the fund can make money on moves in both directions. So the more volatile (within a period) the more money making moves there. If this is the benchmark: _ _/\ / / \_/ \/ at a dollar per slash, it's up $2. A fund that bet (and realised) a $1 per slash made $8. (Even with only long bets, they could make $5.)

The market has moved a lot. But the point is that if the fund goes 100% TSLA at the beginning and does nothing else it would have outperformed massively and the volatility of the market would be completely irrelevant.
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