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What I Learned from Losing $200M (2015)

nautil.us

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Re: What I Learned from Losing $200M (2015)

#61

Post by [deleted] »

brianpgordon wrote: post #42
Danihan wrote: post #36

Earlier quoted context omitted.

I'm sure you're correct, all stock picking is dangerous though. I'd assert that my style is the least dangerous. > look around your little bubble I didn't (and don't) have a bubble. In fact, I frankly despise the Bay Area and SV because it constantly tries to put you in a liberal / wealthy bubble. >If you can see signs that Chipotle is doing well, so can everyone else. Apparently not, though. They doubled on IPO but…

> I didn't (and don't) have a bubble. In fact, I frankly despise the Bay Area and SV because it constantly tries to put you in a liberal / wealthy bubble. Almost everyone lives in a bubble. Unless you're a nomad traveling constantly, you mostly just see what's in the vicinity of your house or apartment. Your local area with the successful Chipotle is a bubble. Tech support is just one tiny slice of the uses for a sea…

[deleted]

Re: What I Learned from Losing $200M (2015)

#62

Post by pdm55 »

gowld wrote: post #52
ryandrake wrote: post #34

Earlier quoted context omitted.

Those would be the few on the right-most side of the distribution who flipped heads 10 times in a row. As soon as they inevitably flip tails, we'll post facto find others who have gotten consistent returns and declare them to be the ones with the secret sauce.

That's not how math works. Buffet has been "flipping heads" consecutively for several decades, with no regression to the mean.

Some info I gained from when I last read some of Buffett's annual letters: (1) He said he likes the insurance business (Gen RE, Geico) as it gives him money to use; (2) He doesn't like to use that money to buy shares, he likes to buy the whole of solid, multi-million family businesses e.g. furniture businesses; (3) He encourages the previous owners & management to stay on and run the business; (4) He doesn't pay dividends - so you aren't going to get that regular income by investing in Berkshire Hathaway; (5) If he buys shares, he intends to hold those shares for decades, e.g. American Express and Coca-Cola (he now owns about 10% of each); (6) He constantly warns that he might lose substantial amounts through insurance payouts. How much will he lose through the damage done this hurricane season? A list of his present holdings: https://en.wikipedia.org/wiki/List_of_assets_owned_by_Berksh...

Re: What I Learned from Losing $200M (2015)

#63

Post by yters »

seanmcdirmid wrote: post #58
yters wrote: post #44

Earlier quoted context omitted.

If you think 200 heads in a row is practically possible on a random flip, I have a bet to make with you.

Flipping heads 200 Times is definitely possible, I can do the math to prove that. It is just greatly improbable to happen in the space or lifetime of the universe.

Probabilities can be so small they are only possible in a mathematical sense, but impossible practically speaking. When faced with such small probabilities we can use Bayes theorem to infer a better explanation than chance, such as a two headed coin.

Re: What I Learned from Losing $200M (2015)

#64

Post by yellowstuff »

oreo81 wrote: post #45
brianpgordon wrote: post #42

Earlier quoted context omitted.

> I didn't (and don't) have a bubble. In fact, I frankly despise the Bay Area and SV because it constantly tries to put you in a liberal / wealthy bubble. Almost everyone lives in a bubble. Unless you're a nomad traveling constantly, you mostly just see what's in the vicinity of your house or apartment. Your local area with the successful Chipotle is a bubble. Tech support is just one tiny slice of the uses for a sea…

You're just assuming that no one can see trends more effectively than you. The reality is that you have no idea how other people see the world, people could be way ahead of you and you'll never know it.

For big companies thousands and possibly tens of thousands of professionals around the world are putting in long hours thinking about what the correct stock price is. They are meeting with management, buying proprietary research, and hiring PhDs to analyze quantitative data. Despite all that the market makes mistakes a lot, and sometimes a perceptive amateur might even be able to pick up on those mistakes. Still, I really doubt that many people are good enough at spotting trends to generate market-beating returns. If they could do it reliably they'd be billionaires.

Re: What I Learned from Losing $200M (2015)

#65

Post by martijndwars »

Danihan wrote: post #26
scalesolved wrote: post #25

Earlier quoted context omitted.

Your reasoning seems to contradict itself, it's a very complex black box of limited internals yet you were able to still easily glean big winners? Stock picking is the same as gambling, you look for value and try overtime to beat the market. Also like gambling is how people remember and talk about their wins but forget/ignore their losses.

Because I don't look at the internals, I look at the outcomes. Eg - Everyone using google, everyone eating at Chipotle, everyone being addicted to cell phones, etc.

Picking stocks based on "everyone uses..." is a great example of a bubble. What about all the companies that are not consumer facing?

Re: What I Learned from Losing $200M (2015)

#66

Post by blackholesRhot »

I was working in the crude oil / nat gas options pit at the NYMEX during the summer of 2008 when these trades went down (where much of Mexico's hedge was traded but not necessarily the author's portion.) A highly ironic part of this story is that the traders in the pit selling to Mexico thought they were getting an incredible deal. Both because the price of crude was so high at the time but also because they were able to "fade" the market. When you're in a pit like this, there are only ~100 "seats". At the time this meant 100 people who had firms with enough cash to front ~$1.5M so that you could stand for 6.5 straight hours in a tiny space at the NYMEX and shout back and forth. Basically what happens is someone will yell out to the other 100 people "what's the market on DEC'9 crude?" The point is they aren't supposed to say whether they want to buy or sell. Other people will yell out the prices they'd be willing to buy or sell at and the quantity. Say someone is willing to sell 200k options at $100/option, and someone else likes that price, they can yell "sold, 50 DEC'9 crude at 100." meaning they just bought 50k options expiring in December 2009. For this particular trade, there were three brokers that were known for representing mexico's hedge in previous years. Traders were expecting them to come back around this time. When one of these brokers came into the pit and yelled out "what's the market on DEC '9 crude" traders guessed he was hedging for mexico and quoted a price a full dollar above where the market was at. A bunch of people piled on willing to sell at even higher prices. The brokers had no choice but to accept this higher price. I was just a 22 year-old DRW intern on loan from a Stanford PhD program and in my head I was thinking "what the hell is going on.. that's not the fair price. I need to be selling!" I didn't actually sell anything because I didn't have the confidence or authority (it was my first month). But a senior trader explained this to me on our walk back to 7 world trade center after.

Re: What I Learned from Losing $200M (2015)

#67

Post by kovek »

Danihan wrote: post #36
brianpgordon wrote: post #33

Earlier quoted context omitted.

That kind of stock picking is dangerous. First, it's easy to look around your little bubble and see that people are lining up at your local Chipotle or that people use Google for solving tech support problems, and conclude that Chipotle and Google are taking off. They may be not be doing as well in other locales/sectors. And second, how do you know that these signs of promise aren't already priced in? If you can see…

I'm sure you're correct, all stock picking is dangerous though. I'd assert that my style is the least dangerous. > look around your little bubble I didn't (and don't) have a bubble. In fact, I frankly despise the Bay Area and SV because it constantly tries to put you in a liberal / wealthy bubble. >If you can see signs that Chipotle is doing well, so can everyone else. Apparently not, though. They doubled on IPO but…

> That should make you want to invest in the #1 company that manufactures satellite components.

I understand the idea, and I might agree. I just wanted to point out that in the book "The Intelligent Investor", there was the idea that you could think about investing into the second best player in a certain space.

I think the reasoning was that there is more opportunity for growth for a second-grade company than a first grade company. Maybe the first-grade company is not looking at the problem in an innovative way. I think it probably depends on the case.

I tried to look into "second-grade" in my copy but that's a term relating to stocks, and not the leaders of an industry.

Maybe I'm misinterpreting that book or misremembering it

Edit: By the way, good job on the successful investments! I wish I was as confident about my observations of different businesses.

Re: What I Learned from Losing $200M (2015)

#68

Post by blackholesRhot »

blackholesRhot wrote: post #66

I was working in the crude oil / nat gas options pit at the NYMEX during the summer of 2008 when these trades went down (where much of Mexico's hedge was traded but not necessarily the author's portion.) A highly ironic part of this story is that the traders in the pit selling to Mexico thought they were getting an incredible deal. Both because the price of crude was so high at the time but also because they were abl…

Also, this hedge became an extremely famous trade in the years to come, netting Mexico $8B in savings.

https://www.ft.com/content/ccd87f9e-9bd9-11de-b214-00144feab...

https://www.bloomberg.com/news/features/2017-04-04/uncoverin...

Re: What I Learned from Losing $200M (2015)

#69

Post by xstartup »

tryingagainbro wrote: post #11
xstartup wrote: post #2

The same thing happened to me. I had lost 2M in bad deals. "The illusion of control, overestimate your risk" and failure to understand "probability", the tail risk was responsible for my ruin.

2 mil was all you had, more or less? Must've been devastating. You could live like a king in a lot of places with $2mil...almost for life. Not in NYC but the world has a lot of countries

I went into serious depression for a month after that. That was not all money. I've more in saving which I don't touch. Honestly, I don't know what 2M buys because I've never spent any significant amount of money on anything. I don't know how much 2M is, all I know is that I had worked 2 years for that money. Whenever I remember that 2 years worth of my efforts has been flushed down the drain, it makes me sad.

Re: What I Learned from Losing $200M (2015)

#70

Post by dcow »

yellowstuff wrote: post #64
oreo81 wrote: post #45

Earlier quoted context omitted.

You're just assuming that no one can see trends more effectively than you. The reality is that you have no idea how other people see the world, people could be way ahead of you and you'll never know it.

For big companies thousands and possibly tens of thousands of professionals around the world are putting in long hours thinking about what the correct stock price is. They are meeting with management, buying proprietary research, and hiring PhDs to analyze quantitative data. Despite all that the market makes mistakes a lot, and sometimes a perceptive amateur might even be able to pick up on those mistakes. Still, I r…

What a waste, isn't it? Or maybe better put, how presumptuous to think that years of statistical modeling and formal economic theory somehow endow someone with effectively better intuition than the next person. Maybe if those years of training actually lead to better investments there would be something to consider, but you can't argue that professional gamblers are better than casual intuitive ones if the pros don't actually yield better results.
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