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Every one of those items could be a good thing, and the primary 'alpha producing quality' of a given find. * stays away from stuff everyone else is talking abo

Every one of those items could be a good thing, and the primary 'alpha producing quality' of a given find. * stays away from stuff everyone else is talking about --> the big hits only come from things that everyone eventually 'talks about'. So you must be aware of this dynamic. You don't want to ignore the herd - you want to be just ahead of it. Ergo - you have to understand herd dynamics. * stays away from hedging - 'hedging' is still used often, and it's an important part of risk mitigation and execution strategy. Anyone that ignores herding is ignoring an essential tool that they can use * stays away from diversification - same as previous: financial diversification is another essential tool. * arbitrary limitations - no investor makes 'arbitrary' decisions. They stay away from certain sectors for a reason: they don't understand it, it's risky, there are geopolitical issues they can't control etc. * tries to keep costs down - uh ... keeping costs down is what every company should aspire to do. In fact - if a fund can get rid of 1/2 it's staff through automation, well, you could make more money depending on how the fees are structured * doesn't worry about volatility - no - you definitely want them to worry about volatility as it's an essential financial characteristic of the market and means a lot. If your strategy is to invest in cheap blue-chips that pay nice dividends because other investors are not paying attention ... well, volatility is bad. Here's the key: Investing is not really investing. It's mostly gambling - in the sense that it's a zero-sum game, played against other players. It's more like poker. You don't win at poker just by playing smart cards. You win at poker by understanding other players predictable behaviour, ie understanding the market, as it is driven by other players. Though markets do grow and there are some 'bonus surpluses' for everyone, most firms do not win off this - they can only win if someone else loses.

Retric 10y ago
Herds increase risks and are thus bad. If your going to try and predict human behavior your better off using that when buying stock. AKA if you know the iPhone is going to win then buy Apple. Or if you bought Dell at IPO that's 500x returns over 12 years.
unknown_apostle 10y ago
* “Stuff everyone is talking about”: I mean mostly staying away from IPOs, crap on business magazine covers, TINA narratives etc. Especially stay away from “tips”. And from stuff involving former politicians or government (yea I’m European). Actually I can go on for hours on all the stuff I don't like. * Dealing with risk: hedging and diversification are expensive in more than 1 way. An investor can manage risk with cruder and cheaper means. E.g. by taking out the original investment after the first ~100% in capital gains. Or quickly cutting companies that start violating your initial criteria. Or limiting yourself to trampled paper that hides a beautiful earning machine. Or most important of all: doing nothing in case you can’t find that kind of trampled paper. * Wrt risk: I guess periodically holding a huge war chest of cash is the only “diversification” I can approve of. * Many funds and portfolios are built around arbitrary criteria. By which I mean any criteria that have nothing to do with predictability of earnings and low prices for each individual position (when talking about stocks). * Volatility is irrelevant. Actually, if you have the tiniest bit of patience and a decent stomach, volatility is awesome. I’m happy if I can pay $1 dollar for a well run company that makes 0.25 dollars in yearly profits. I’m happier if it’s an illiquid company and one beautiful day my fishing order for $0.75 dollars gets filled. Often, companies are more volatile when they’re down, so I even feel confident to say that volatility can do wonders for your performance. I don’t think proper investing is anything like gambling and I’m pretty sure you’re not playing a zero sum game. Trading on the other hand is a zero sum game. That’s one reason to not be bullish on any given guy who trades without working for Rentec & co.
- jomamaxx 10y ago
  Dude, I don't mean to disrespect you, but I don't think you have a background in finance. * "Especially stay away from “tips”." Ha. My friend - most of the big earnings are made from tips. Financial markets are awash in near-insider trading. It's totally institutionalized. "Tips" are how some of the biggest funds make 100% of their money. Do you honestly think these people are better investors? They pay 'consultants' to talk and try to glean info or they're just passed tips directly. * There are very well established mathematical mechanisms for proper hedging, diversification and risk management. Most stocks are correlated with other stocks, usually in the same sector. There are mechanisms to evaluate correlations across a portfolio and find inversely correlated stocks to properly hedge. It has nothing to do with those companies, usually sectors. * "Actually, if you have the tiniest bit of patience and a decent stomach, volatility is awesome" - this is your, personal investment approach. It has nothing to do with what funds may or may not do WRT to volatility. You missed my point: some funds will pay a heavy price for more volatility in the market, given their strategy. So volatility is pretty important and relevant to any strategy. * "I don’t think proper investing is anything like gambling and I’m pretty sure you’re not playing a zero sum game." Yes - investing is gambling. There is only about 1% GDP growth in the US economy in a given year. This means there are very little surpluses to be spread out. If funds could only fight for those surpluses, then nobody would be getting amazing returns, and most funds would get 0% return. Ergo - it's mostly a zero-sum game. Meaning - your winnings come from others loses. Meaning: it's poker - and strategies mostly involve understanding how other people invest. Do you know the saying - when you look around the poker table if you don't see the 'mark' - then the 'mark' is you? You are playing against people who have access to inside information, better research, better trading tools, and tons of staff. Do you think you're going to beat them? Almost every retail investor is a 'mark'. They are giving their money to the hedge funds. The same can almost also be said for larger funds, often lazily managed.

Retric 10y ago

Herds increase risks and are thus bad. If your going to try and predict human behavior your better off using that when buying stock. AKA if you know the iPhone is going to win then buy Apple. Or if you bought Dell at IPO that's 500x returns over 12 years.

unknown_apostle 10y ago

* “Stuff everyone is talking about”: I mean mostly staying away from IPOs, crap on business magazine covers, TINA narratives etc. Especially stay away from “tips”. And from stuff involving former politicians or government (yea I’m European). Actually I can go on for hours on all the stuff I don't like. * Dealing with risk: hedging and diversification are expensive in more than 1 way. An investor can manage risk with cruder and cheaper means. E.g. by taking out the original investment after the first ~100% in capital gains. Or quickly cutting companies that start violating your initial criteria. Or limiting yourself to trampled paper that hides a beautiful earning machine. Or most important of all: doing nothing in case you can’t find that kind of trampled paper. * Wrt risk: I guess periodically holding a huge war chest of cash is the only “diversification” I can approve of. * Many funds and portfolios are built around arbitrary criteria. By which I mean any criteria that have nothing to do with predictability of earnings and low prices for each individual position (when talking about stocks). * Volatility is irrelevant. Actually, if you have the tiniest bit of patience and a decent stomach, volatility is awesome. I’m happy if I can pay $1 dollar for a well run company that makes 0.25 dollars in yearly profits. I’m happier if it’s an illiquid company and one beautiful day my fishing order for $0.75 dollars gets filled. Often, companies are more volatile when they’re down, so I even feel confident to say that volatility can do wonders for your performance. I don’t think proper investing is anything like gambling and I’m pretty sure you’re not playing a zero sum game. Trading on the other hand is a zero sum game. That’s one reason to not be bullish on any given guy who trades without working for Rentec & co.

jomamaxx 10y ago
Dude, I don't mean to disrespect you, but I don't think you have a background in finance. * "Especially stay away from “tips”." Ha. My friend - most of the big earnings are made from tips. Financial markets are awash in near-insider trading. It's totally institutionalized. "Tips" are how some of the biggest funds make 100% of their money. Do you honestly think these people are better investors? They pay 'consultants' to talk and try to glean info or they're just passed tips directly. * There are very well established mathematical mechanisms for proper hedging, diversification and risk management. Most stocks are correlated with other stocks, usually in the same sector. There are mechanisms to evaluate correlations across a portfolio and find inversely correlated stocks to properly hedge. It has nothing to do with those companies, usually sectors. * "Actually, if you have the tiniest bit of patience and a decent stomach, volatility is awesome" - this is your, personal investment approach. It has nothing to do with what funds may or may not do WRT to volatility. You missed my point: some funds will pay a heavy price for more volatility in the market, given their strategy. So volatility is pretty important and relevant to any strategy. * "I don’t think proper investing is anything like gambling and I’m pretty sure you’re not playing a zero sum game." Yes - investing is gambling. There is only about 1% GDP growth in the US economy in a given year. This means there are very little surpluses to be spread out. If funds could only fight for those surpluses, then nobody would be getting amazing returns, and most funds would get 0% return. Ergo - it's mostly a zero-sum game. Meaning - your winnings come from others loses. Meaning: it's poker - and strategies mostly involve understanding how other people invest. Do you know the saying - when you look around the poker table if you don't see the 'mark' - then the 'mark' is you? You are playing against people who have access to inside information, better research, better trading tools, and tons of staff. Do you think you're going to beat them? Almost every retail investor is a 'mark'. They are giving their money to the hedge funds. The same can almost also be said for larger funds, often lazily managed.