That is precisely my point... To me the conclusion from all this is that generalizations are not worthwhile in this and every case is going to be different, in which case there's nothing interesting to say, other than "always do your own due diligence and homework".
Trading Wisdom for Aspiring Hedge Fund Managers
- Thread starter darkhorse
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Well, excepting the fact that the decision to embrace volatility in a calculated risk-type manner, in a career path, a contained-risk project within a larger path, or a particular investment, could have positive evolutionary benefit. Some may not have considered the useful implications of that.
Say, for example, that a trader with $250K in risk capital decided to set aside 20K for an experimental short-term options strategy, in which odds were high that capital would be lost as a form of tuition cost, but odds were also worthwhile that some new and useful insights would be gained, with an outlier chance at significant breakthrough that enhances the bread and butter strategy in a powerful way. Thinking about the embrace of volatility could lead to potentially useful creative decisions like this.
And on a broader level, it's all food for thought. That's kind of the point of this thread
p.s. I would add that "generalizations as a rule are not worthwhile" is in itself a worthy insight - as academics especially tend not to know this!
I would make the distinction between someone trying to accumulate wealth
versus someone trying to preserve and grow existing wealth perhaps accross generations.
In the first case, time is short. A great investing/trading strategy has its "optimal"
volatility and ensuing drawdowns past most people's vomit point.
The perverse thing is that the better the risk /reward of the strategy the larger the optimal
volatility and drawdowns are.
For someone in the second category, volatility is not desirable. You need investing/trading
strategies that are foolproof to black swans and slowly keep you ahead of inflation.
You may sacrifice extra return for insurance against social unrest, confiscation, wars,
natural disasters etc.
versus someone trying to preserve and grow existing wealth perhaps accross generations.
In the first case, time is short. A great investing/trading strategy has its "optimal"
volatility and ensuing drawdowns past most people's vomit point.
The perverse thing is that the better the risk /reward of the strategy the larger the optimal
volatility and drawdowns are.
For someone in the second category, volatility is not desirable. You need investing/trading
strategies that are foolproof to black swans and slowly keep you ahead of inflation.
You may sacrifice extra return for insurance against social unrest, confiscation, wars,
natural disasters etc.
Yep, fair point - though as an additional note, having a large store of wealth also creates more opportunity to make venture capital style bets: Setting aside a small percentage of capital for higher risk, lower probability ventures that may yet develop into huge opportunities.
In terms of wealth preservation, embracing volatility at the margins (though not at the core, obviously) is paradoxically another form of insurance, as it increases one's odds of multiplying one's wealth substantially in new areas (which guards against risk of erosion in more traditional areas etc.)
Trading Wisdom 20: Inflow Driven Market
"A market that is driven by inflows can have small corrections, but it has to then immediately recover to new highs to keep generating new money inflows. Otherwise, money inflows are likely to dry up, and the market will fall apart. Therefore, this type of market is likely to either trend higher or break sharply."
- John Bender, Stock Market Wizards
JS comment:
What are some other characteristics of an inflow driven market?
With the major U.S. indices soft near multi-year highs, are we in one right now?
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"A market that is driven by inflows can have small corrections, but it has to then immediately recover to new highs to keep generating new money inflows. Otherwise, money inflows are likely to dry up, and the market will fall apart. Therefore, this type of market is likely to either trend higher or break sharply."
- John Bender, Stock Market Wizards
JS comment:
What are some other characteristics of an inflow driven market?
With the major U.S. indices soft near multi-year highs, are we in one right now?
Buy Stock Market Wizards on Amazon
Get Trading Wisdom via e-mail
Quote from darkhorse:
Trading Wisdom 20: Inflow Driven Market
"A market that is driven by inflows can have small corrections, but it has to then immediately recover to new highs to keep generating new money inflows. Otherwise, money inflows are likely to dry up, and the market will fall apart. Therefore, this type of market is likely to either trend higher or break sharply."
- John Bender, Stock Market Wizards
JS comment:
What are some other characteristics of an inflow driven market?
With the major U.S. indices soft near multi-year highs, are we in one right now?
Buy Stock Market Wizards on Amazon
Get Trading Wisdom via e-mail
Looks kinda neat these days.........
Volume has dropped off to before this Depression level of current volume.
So this is a market based on inflows. Right now the volume is demonstating out flows.
Those who know what a climax run is will not agree with Bender. Why should they, they use a diffeent strategy.
The inflow/outflow has to be in a context.
As we come to the end of this Depression's second move, we all know this move is a nondominant move in any long term trend and this contemporary long term trend is called a Depression.
So everything is working according to Hoyle as they say.
Let's look at the third move and the inflow/outflow money.
Volume is going to be incresing in the third move. The sentiment is SHORT.
So what are the Finncial Planners going to do? Read AARP monthlies?
Inflow/outflow works on three turfs: Lets call them A, B and C.
As usual he biggie is Bonds; the smallie is cash. So B is stocks.
The last move of the depression has two outflows and one inflow.
Since Bender addressed inflow he is talking about people going to cash.
Aspiring hedge fund managers are going to be fighting financial planners who are going to try to keep fees and comissions rolling.
I bet they (FP's, the aspirers re screwed for a decade) try for two out of the box pre death savers: immmediate annuities (lump sum) and reverse mortgages of owned devalued homes (lifetime payments).
So how do the funds get any capital from these two deals? They don't.
Two books to read that can change the mind of a person entering or moving around in the finacial industry are WJO'N's two most popular. One has 24 tidbits. you can devour in a weekend. The other one tells you where EPS and RS the popular percentiles come from.
both get you to high Beta land with a quality emphasis. This mature reasoning is the OPPOSITE of HEDGING.
Hedging is done when you do not know the outcome.
when you know the outcome, you go for high money velocity income like DH calc'ed for my beginner. the 1000% a year.
How do you hedge your trading when you are making 1000% a year? Simple. You don't waste your time.
A 1000% a year is inflow driven wealth building. money is flowing to you from those who have the opposite viwpoint of your viewpoint. My beginners make 1000% and they have the opposite view of DH.
If you have outflow and you hedge it, all you are doing is limiting losses.
Low turn over Hedge Funds can only handle 10% of the inflow they could have. High turn over Hedge Funds, can't keep customers and fire employees so they can replace them at higher costs for more talent.
And we are getting down to the kickoff for the last leg of this Depression.
Knowleedge and skill give immunity. Ignore doesn't give immunity. Get a yellow hi-liter.
Whoa. Wrong side of the bed this morning?
As one might expect, there is more than a surface level explanation here. You can interpret the reasoning as circular, or you can consider the possibility that certain market environments have more binary profiles than others, in the sense of a momentum pull leading to free fall because, once the momentum based buying stops, there is very little to support the bid.
As a graphic example, reference the price action in silver for the first half of 2011. Or consider the current state of grain markets, or the potential drivers for a heavily shorted stock that has been grinding higher over a multi-week period via momentum induced short covering. These types of situation are not frequent, but they can be lucrative.
Many worthwhile ideas can be written off as ambiguous. It is hard to be explicit in a few sentences, and there is usually a stupid or 'duh' way to interpret an idea as well as a more thoughtful way.
To use another analogy, contemplative statements and observations are less like hundred dollar bills to be picked up, and more like a drilling or mining site. It's very easy to say "whatever, it's just a fucking hole in the ground" - to have a hope of extracting value, you have to dig a little. If such digging yields some insight, even in a completely tangential area, if you otherwise would not have been digging in that ground then the concept had some utility.
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