Global Macro Trading Journal

Quote from Ghost of Cutten:

There's a survivor bias problem there though. Let's take entrepreneurs who make their first $10 million. Is it net profitable, as a group, for them to sell half their stake and diversify? Second, and more important - is it net positive in terms of life satisfaction?

So, out of 100 entrepreneurs who hit 10 mill, let's say 1 makes 1 billion+, 4 make 100 mill, 15 end with 10 mill, 30 end up with 1 mill, and the rest lose everything. That's 95 out of 100 people who would have been financially better off by hedging at the $10 mill mark, AND they took far less risk to get this superior outcome. And the 5 that scored big, the difference in satisfaction between 50 mill and 100 mill, or 500 mill and 1 bill, is marginal, it could be zero or may even be negative (security concerns, adverse publicity, loss of privacy etc).

The lesson then is that in most cases you need to be highly irrational - ignoring risk; gambling with money you can't afford to lose to get money you don't need - to maximise your chances of becoming one of the world's richest people. Probably only a small fraction of the world's billionaires actually reached that goal whilst following rational risk/reward trade-off decisions.
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Taleb has a more eloquent way of saying this: "Fooled by Randomness"
 
Quote from Ghost of Cutten:

There's a survivor bias problem there though. Let's take entrepreneurs who make their first $10 million. Is it net profitable, as a group, for them to sell half their stake and diversify? Second, and more important - is it net positive in terms of life satisfaction?

So, out of 100 entrepreneurs who hit 10 mill, let's say 1 makes 1 billion+, 4 make 100 mill, 15 end with 10 mill, 30 end up with 1 mill, and the rest lose everything. That's 95 out of 100 people who would have been financially better off by hedging at the $10 mill mark, AND they took far less risk to get this superior outcome. And the 5 that scored big, the difference in satisfaction between 50 mill and 100 mill, or 500 mill and 1 bill, is marginal, it could be zero or may even be negative (security concerns, adverse publicity, loss of privacy etc).

The lesson then is that in most cases you need to be highly irrational - ignoring risk; gambling with money you can't afford to lose to get money you don't need - to maximise your chances of becoming one of the world's richest people. Probably only a small fraction of the world's billionaires actually reached that goal whilst following rational risk/reward trade-off decisions.
More...


Well, I would draw a different lesson from the quote... first of all, it's not really about becoming "super-wealthy."

I would argue a net worth between, say, $10 and $100 million is something that can be achieved through exceptional talent and lots of hard work. To become a billionaire (let alone multi-billionaire) from scratch, however, you need the prior two plus a large helping of serendipity.

To repeat the quote: "Most of these billionaires got super-wealthy because they had one big position, one big activity they were a majority owner of, that did amazingly well."

Taking the super-wealthy part out, I would say the idea still applies because the concept scales to lower levels. The best shot at achieving generational wealth (i.e. a fortune big enough for your grandchildren to spend) is still finding a concentrated area of opportunity and really leveraging it.

To do this within the context of trading pretty much demands raising money, starting a fund etc, in which case the concentrated area of opportunity is a robust strategy that can be effectively marketed and scaled.

As for becoming "one of the world's richest," I would agree that is not a goal to be pursued directly, but more something that happens by accident. Soros originally wanted to make $1 million and retire as a philosopher. Zuckerberg never really cared about money and still doesn't seem to, etc.

From an emotional standpoint, trying to become "the richest" is a foolhardy goal anyway. There will always be someone luckier and dumber. John Paulson, for ex., leap-frogged a lot of world class players by acting like a riverboat gambler (if his subprime all-in timing had been off by another 9 to 12 months, not at all a long time in the macro scheme of things, or if the government had acted more decisively, not all that far-fetched either, he would have been busto).
 
Interesting comments by Hugh Hendry
http://www.scribd.com/fullscreen/91764042

I very much agree with him with his comments of deflationary fears being in the market as a result of the 2008 crisis and its aftermath being fresh in people's minds.

I saw a blogger make a crude calculation of what is the implied probability of the US turning into Japan derived by the yields in USTs. It came out at 70%
It was a crude calculation but it should be roughly correct. It explains why yields in most industrialized government bonds are so low
Of course, this Japanification bid in bonds won't stay there forever and I believe in the case of the US its highly likely it creates a mispricing in yields of USTs. I'm only long TLT to play a greater fool trade. I realize I'm one of the fools, which might give me an advantage over the other fools
 
Quote from Daal:
His figures are probably off due the Fed's 2014 pledge and some of his assumptions. But it does suggest that there is a significant implied prob that inflation will be very very low due japanification for a long-time. Specially looking a 30y USTs
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It's a very subjective exercise.
 
Quote from Daal:
Are there quotes on deep OTM call options in USTs for expirations longer than 8 years?
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Hell, no. Swaptions, for sure, but not USTs or UST futures. Also, when you say "call options on USTs", do you mean call options on the UST yield? I.e. you're looking for a way to be short the treasury mkt?
 
Quote from Martinghoul:

Hell, no. Swaptions, for sure, but not USTs or UST futures. Also, when you say "call options on USTs", do you mean call options on the UST yield? I.e. you're looking for a way to be short the treasury mkt?
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Not looking to short. Just trying to find out what are the implied probs of rates being say 100bps lower than right now many years from now. I mean call options on the price
 
Quote from Daal:
Not looking to short. Just trying to find out what are the implied probs of rates being say 100bps lower than right now many years from now. I mean call options on the price
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Ah, yes, I see... Well, there's a bit of a problem trying to imply a probability distribution out of those. The zero bound sorta f*cks everything up (referring to swaptions, which is the only mkt that exists that far out).
 
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