it's interesting that he does actually show alpha. his longs underperform the market over last five years (94% vs. 95.5%) but his shorts do better than one would expect (about 80% vs 87%). What he's managed to do is find two groups of stocks that both underperform the market - both his longs and his shorts underperform the market. So if he simply purchased the S&P 500 minus his shorts and his longs, he would have a market beating fund.
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this is really a thing that people put their money in
- Thread starter billyjoerob
- Start date
it's interesting that he does actually show alpha. his longs underperform the market over last five years (94% vs. 95.5%) but his shorts do better than one would expect (about 80% vs 87%). What he's managed to do is find two groups of stocks that both underperform the market - both his longs and his shorts underperform the market. So if he simply purchased the S&P 500 minus his shorts and his longs, he would have a market beating fund.
That's not true. You have to adjust the returns for units of risk. For each sigma unit, what is his marginal return on capital. THAT is what he is after. You can't simply take net returns of longs and shorts.
Where do you get this nonesense from? Have you any background in statistics, or are you just making this up? Picking a random smaller subset of a large group of stocks always leads to a poorer risk adjusted return, that's the bedrock of modern portfolio theory and not disputed by anyone. Maybe you heard once that randomly picking 50 stocks will outperform an average active pick portfolio manager, which may be true but is very different thing than what you said.
Pretty sure I'm going to believe a $25B Hedge Fund Manager with actual statisticians and quants over some guy on the internet (EliteTrader at that).
Pretty sure I'm going to believe a $25B Hedge Fund Manager with actual statisticians and quants over some guy on the internet (EliteTrader at that).
This violates the central limit theorem. If you randomly pick stocks from a large sample assuming a normal distribution, then the random picker will draw the mean expected value from that sample. In other words, the implication is that most fund managers on avg will get the avg or the mean return in which there is no statistical significance between their performance and a random picker. This is NOT the same thing as a random picker outperforming 99% of fund managers. It's not possible because with both samples, their expected value should be the same, not different. Which is the real issue.
Show me a hedge fund manager of any size who backs up your claim. This is stats 101 my friend. No need to believe me but you can believe everyone who has ever taken an undergrad level stats class, a set of individuals that clearly doesn't include thenotsogreatgatsby. Again I think you're misremembering a story about a random portfolio outperforming active stock pickers, and even then 99% is just a bit of an exaggeration but would love to see your source nonetheless.
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Show me a hedge fund manager of any size who backs up your claim. This is stats 101 my friend. No need to believe me but you can believe everyone who has ever taken an undergrad level stats class, a set of individuals that clearly doesn't include thenotsogreatgatsby. Again I think you're misremembering a story about a random portfolio outperforming active stock pickers, and even then 99% is just a bit of an exaggeration but would love to see your source nonetheless.
https://drive.google.com/file/d/0B9_mlYkiToWIY2luZGRqUU1DVFFfbmMwS2dLN3VCdDlHYy13/view?usp=sharing
They have put over $1B into this strategy and it has been beating the S&P 500
https://drive.google.com/file/d/0B9_mlYkiToWIY2luZGRqUU1DVFFfbmMwS2dLN3VCdDlHYy13/view?usp=sharing
They have put over $1B into this strategy and it has been beating the S&P 500
Whoa there Nelly. This is completely different from what you said. I think you missed the point of the article. He is talking about the concentration effect in market cap weighted indices. Has nothing to do with randomness or beating hedge fund managers, hell they weren't even mentioned. The topic of this study was completely different from your post. LOL.
Whoa there Nelly. This is completely different from what you said. I think you missed the point of the article. He is talking about the concentration effect in market cap weighted indices. Has nothing to do with randomness or beating hedge fund managers, hell they weren't even mentioned. The topic of this study was completely different from your post. LOL.
No it wasn't. I said picking random 50 stocks will beat the S&P 500. Don't make assumptions about beating managers or other retarded shit you spew out of your mouth.
In October 2011, David Harding published the results of our research into the
efficiency, or otherwise, of market-capitalisation weighted portfolios1
result was that randomly chosen equally weighted portfolios had outperformed
the S&P500 from 1965 through to 2011.
This is what you said and it's not true.
"Picking 50 random stocks will outperform the S&P 500 99% of the time. Investing isn't this hard people."
Not even close to being true. You don't even understand what his study is implying.
"Picking 50 random stocks will outperform the S&P 500 99% of the time. Investing isn't this hard people."
Not even close to being true. You don't even understand what his study is implying.
Just to add to Maverick's comments, this marketing piece is about equal weighting vice cap based weighting. It in fact specifically states that the effect is most probably based on cap effect, not random selection. Not to mention its not peer reviewed nor does it give any info needed to check the strength of the effect, like p value (you didn't realize it but you pointed out the need for a p value with your "99%" of the time comment, which was not supported, and would in fact be shocking to see). Nor does it rule out data snooping, for example does this hold for 45 stocks, 65, or did they just run it with a bunch of sizes until they got the most striking result and publish that? Your level of trust in someone because of their title is also striking. Most likely this was ginned up to meet the authors goals, which obviously didn't extend to impressing anyone with more than a passing familiarity with stats.This is what you said and it's not true.
"Picking 50 random stocks will outperform the S&P 500 99% of the time. Investing isn't this hard people."
Not even close to being true. You don't even understand what his study is implying.