Mark Minervini (Meltdown)

[deaddog]

high covariance means you’re not benefitting from diversification. if you have a high covariance portfolio you should just pick the best stock. Ideally you would only add another position if it was not highly correlated. To some degree they will be correlated but that’s where you compare yourself vs your benchmark.

With a momentum strategy I don't want to benefit from diversification. Or do I?

The objective of diversification is to mitigate volatility. Some stocks go up and some go down. I want the stocks I buy to go up. If they don't I get rid of them.

There seems to be a feeling among portfolio managers that once you commit to buying a stock you have to hold it. I don't feel that way.

Granted I diversify to some extent as I attempt to limit my risk per position but I imaging my 6 to 8 positions is considered under diversified.

 

[longandshort]

With a momentum strategy I don't want to benefit from diversification. Or do I?

The objective of diversification is to mitigate volatility. Some stocks go up and some go down. I want the stocks I buy to go up. If they don't I get rid of them.

There seems to be a feeling among portfolio managers that once you commit to buying a stock you have to hold it. I don't feel that way.

Granted I diversify to some extent as I attempt to limit my risk per position but I imaging my 6 to 8 positions is considered under diversified.

Why have more than one position then?

(hint: you are implicitly seeking the benefits of diversification -- unless you are just being randomby adding other stocks)

also there's a difference between how diversification is preached and how smart managers actually apply it.

 

[fan27]

With a momentum strategy I don't want to benefit from diversification. Or do I?

The objective of diversification is to mitigate volatility. Some stocks go up and some go down. I want the stocks I buy to go up. If they don't I get rid of them.

There seems to be a feeling among portfolio managers that once you commit to buying a stock you have to hold it. I don't feel that way.

Granted I diversify to some extent as I attempt to limit my risk per position but I imaging my 6 to 8 positions is considered under diversified.

Check out this dudes site:

http://qullamaggie.com/about/

He is trading an 8 figure account with momentum based strategies and looking at charts. He has a live twitch stream (free) and there are plenty of videos outlining what he does. Sure, you can go down the rabbit hole of theory with longandshort, but this guy is doing exactly what you talk about (sell things that don't go up or when they quit going up). Add in some basic risk control along with solid stock selection and you are set.

 

[smallfil]

That could be a problem for a momentum strategy. By the time they get their position filled the move is over. Us little guys have the odd advantage.

The hedge funds control the stockmarket so, if they bought in for say $10 million, you have to assume that they expect to be rewarded for getting into the position. They can even buy at higher prices to encourage the retail traders and other hedge funds to jump in. By then, the hedge funds would have taken a good chunk of the available shares so, any shares you buy, chances are pretty good that, it would be for higher and higher prices.

 

[longandshort]

Check out this dudes site:

http://qullamaggie.com/about/

He is trading an 8 figure account with momentum based strategies and looking at charts. He has a live twitch stream (free) and there are plenty of videos outlining what he does. Sure, you can go down the rabbit hole of theory with longandshort, but this guy is doing exactly what you talk about (sell things that don't go up or when they quit going up). Add in some basic risk control along with solid stock selection and you are set.

uhh i just skimmed through one of his videos and i'm pretty sure what he's saying is BS. unless he made a shit ton of money on GME/AMC etc. there's no way he has an 80MM+ account from his trading. trading a 2-5min chart is very capacity constrained because you only need like 5-25k to move a stock 1 penny. if you are trading with 100k+ per position (a $20MM acc is 200k for a 1% position) you would incur significant trading costs, which he does not mention or discuss at all. so either he's making money from another source (e.g. selling subs to his discord or whatever), made it all on 1-2 big trades (GME/AMC calls), or he's just lying.

 

[fan27]

uhh i just skimmed through one of his videos and i'm pretty sure what he's saying is BS. unless he made a shit ton of money on GME/AMC etc. there's no way he has an 80MM+ account from his trading. trading a 2-5min chart is very capacity constrained because you only need like 5-25k to move a stock 1 penny. if you are trading with 100k+ per position (a $20MM acc is 200k for a 1% position) you would incur significant trading costs, which he does not mention or discuss at all. so either he's making money from another source (e.g. selling subs to his discord or whatever), made it all on 1-2 big trades (GME/AMC calls), or he's just lying.

What are you talking about? He holds some of his winning positions for months.

 

[longandshort]

What are you talking about? He holds some of his winning positions for months.

where is he posting his trades?

 

[deaddog]

Why have more than one position then?

(hint: you are implicitly seeking the benefits of diversification -- unless you are just being randomby adding other stocks)

Risk control.

also there's a difference between how diversification is preached and how smart managers actually apply it.

Well that's nice to know. I know a couple managers and they both toe the conventional line. Not saying thy are smart just taken the training that all portfolio managers take.

We have lots of discussions and they are pretty set in their ways. One claims that he has to because of regulators.

 

[longandshort]

Risk control.

Right so you are seeking diversification. If you wanted everything to be super correlated, you are not reducing risk. e.g. if you have a portfolio where everything goes up and down at the same time, then just pick the stock going up the most.

when you add other positions into your portfolio it is because you are looking for an improvement to your portfolio pnl -- a la a reduction in the volatility of your pnl by having multiple positions. this is where covariance measures come in handy, because it tells you a mathy way to ensuring you are "properly positioned" given your intention. a portfolio with too covariance means everything is going up and down at the same time. a portfolio with low covariance means that things go up and down in their own time, which smoothens pnl and reduces risk (though you still are exposed to factor risk!).

Well that's nice to know. I know a couple managers and they both toe the conventional line. Not saying thy are smart just taken the training that all portfolio managers take.

We have lots of discussions and they are pretty set in their ways. One claims that he has to because of regulators.

not all PMs are the same, sadly. you want to learn from managers who run 2-8+ sharpe ratio strategies over a market cycle (10ish years). those are the guys who understand how to extract alpha and are super optimized. the ones that I know are more like highly trained athletes than a Gordon Gekko. the nice thing is that you can apply the basics of their approach and see a significant improvement to your risk management.

i'd recommend trying a minvariance portfolio, managing your var, and managing your factor exposures. see what your performance looks like after a quarter. you might be surprised.

 

[deaddog]

i'd recommend trying a minvariance portfolio, managing your var, and managing your factor exposures. see what your performance looks like after a quarter. you might be surprised.

I'll try anything once.
What's the process? Remember to keep it simple.