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A Man Who Abandoned Value

institutionalinvestor.com

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Re: A Man Who Abandoned Value

#51

Post by n4r9 »

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…

If you're able to tolerate an arbitrary amount of risk, just go to the casino and keep betting on red with doubling stakes, borrowing along the way if necessary, until you win the amount you want.

Re: A Man Who Abandoned Value

#52

Post by Cicero22 »

WA wrote: post #39

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 di…

- 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.

If the goals to expose yourself to luck, why not just purchase lottery tickets then?

Re: A Man Who Abandoned Value

#53

Post by yellowstuff »

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?

Institutional Investor is targeted at people who work in finance, and I think "early" is meant in the sense of being early to trade a particular stock or theme that later becomes popular. So being "early" to GME would mean a month ago, not early relative to the IPO.

Re: A Man Who Abandoned Value

#55

Post by m0llusk »

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…

The article does not claim uniqueness, but focuses on the difference between basing investments on exceptionalism rather than value.

Stand out hedge fund performances typically don't translate even to the same or similar hedge funds at different times let alone scaling to the point of 'gonna shake up institutional investing'.

Re: A Man Who Abandoned Value

#56

Post by weird-eye-issue »

smabie wrote: post #16
weird-eye-issue wrote: post #15

Earlier quoted context omitted.

Your comparison of his investing style to the broad market is incredibly far off. If you want to make calculations at least do it off a more accurate benchmark and not the S&P 500. Something like ARKK or at least QQQ.

ARKK? You want to use an actively managed fund as a benchmark? No one does this. You could use QQQ, with pretty much the same results.

Depends what he is investing in. "Innovative" growth companies? Then ARKK isn't a bad benchmark. QQQ is a lot more conservative compared to what he was investing in.

Re: A Man Who Abandoned Value

#57

Post by OJFord »

kgwgk wrote: post #50
OJFord wrote: post #49

Earlier quoted context omitted.

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.

What point is that? You're moving the goalposts, why would/should/do you think this fund did go '100% TSLA at the beginning and [do] nothinig else'?

Re: A Man Who Abandoned Value

#58

Post by kgwgk »

OJFord wrote: post #57
kgwgk wrote: post #50

Earlier quoted context omitted.

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.

What point is that? You're moving the goalposts, why would/should/do you think this fund did go '100% TSLA at the beginning and [do] nothinig else'?

That seems closer to what they did than timing the market, don't you think?

My point was that to "test" if a concentrated stock-picking fund can get that result by luck you don't look at how often the market with such and such return and volatility gets that performance or how often randomly trading the market would you get this performance.

You look at how rare is it that a concentrated portfolio of random stocks has a very good performance. The answer is "not that much".

Re: A Man Who Abandoned Value

#59

Post by WA »

Cicero22 wrote: post #52
WA wrote: post #39

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 di…

- 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. If the goals to expose yourself to luck, why not just purchase lottery tickets then?

You could, just a different kind of risk/chance. I guess most people want better odds than the lottery gives.

Re: A Man Who Abandoned Value

#60

Post by DanielMcLaury »

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.)

This statement is correct, but doesn't address the problem with the OP's calculation.

This fund is up basically entirely on the strength of TSLA being up 700%. OP is basically considering two possibilities:

1. TSLA stock is a driftless geometric Brownian motion with a volatility matching that of the general market, and happened to get a 700% return purely by chance, or

2. The fund manager, due to his exceptional skill, knew that TSLA was going to be up 700%.

The OP is rejecting option (1) and then concluding that option (2) must be the case.

Of course in reality neither is the case and the OP's calculation is totally irrelevant.

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