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> Around 2008, I read some public filings by banks. I made only two back-of-the-napkin adjustments: 1) I combined off-balance sheet assets and liabilities into
by dsacco 9y ago
> Around 2008, I read some public filings by banks. I made only two back-of-the-napkin adjustments: 1) I combined off-balance sheet assets and liabilities into the balance sheet, and 2) I changed the expected % losses to approximately that of Wells Fargo.
With those two simple adjustments, I saw that some big banks were in the hole by (combined) tens of billions of dollars.
The market prices for these banks made it clear that major investors either didn't read or didn't understand the data in the public filings.
That's impressive work, but I interpret that a little differently. There was definitely irrational exuberance going on, but plenty of major investors understood what was happening well before 2008. The reason the valuations were still out of whack is because having the correct data and the correct analysis isn't enough, you have to correctly forecast how the market will react. So there was an unfortunate feedback loop: many investors savvy enough to see the problem were not betting against it because there are far easier and more consistent ways of trading profitably.
This is why the most successful funds don't really try to replicate the process you're talking about. Their process is data and hypothesis agnostic. A lot of their work happens to align with the sort of analysis you've described here, but they don't start from the same place.
- 3pt14159 9y agoEh. It works if you're a bear. You get in early, you sell in 2006 while shaking your head. Maybe you leave a bit in with extra exposure to volatility so you win either way, maybe not. Then when 2009 hits you pile in again. It's pretty easy to make way above average returns on the stock market. Just look for the classic signs that it is peaking (low unemployment, high P/E, high leverage, bad demographic trends, etc).
- ghfbjdhhv 9y agoIt’s easy in hindsight, that’s for sure.
- chollida1 9y ago2 things about this. 1) if you are a fund you just cant' sit out 3 years. Your fund will shut down as everyone will yank their money,. if its your own money then people will leave as you won't pay bonuses. 2) If you went short in 2006 then you wouldn't have survived until teh crash of late 2008. > It's pretty easy to make way above average returns on the stock market. This is just an absurd statement along the lines of its easy to build a billion dollar company just mimic what all the other billion dollar companies do. Sorry for being so negative to your comment, but come on. That statement can't be seriously defended in any resonable manner.
- ISL 9y agoIf you are Berkshire or Amazon, you can sit on cash or potential earnings for years, and investors can trust you with it. The keys are finding the right investors and demonstrably earning their trust.
- sumedh 9y ago> The keys are finding the right investors and demonstrably earning their trust Do you want to spend time finding the right investors or do you want to spend time reading 10Ks?
- 3pt14159 9y agoThe limitations of fund structuring aren’t my concern. I’ve been investing for decades and it’s trivial to beat the market if you’re patient and knowledgeable about tech. The fact that funds do worse than indexed etfs says more about fund incentives and investor savviness than it does about the effectiveness of this strategy.
- dumbass123 9y agoOk. A fuck ton of metrics show the market is currently overvalued. Are you going to put on a short and just sit and wait? How much money might you be losing in the meantime? What's the opportunity cost of having your money sit there while it could be earning returns elsewhere? Last year equity index vol was ridiculously low. Tons of hedge funds held long volatility positions and kept rolling. Even with the events earlier this year, they still ended up down money on the position. If you really think investing off business cycles is long term profitable, you don't know what you're talking about.
- rhizome 9y agoWhat kinds of successes have you had using this strategy?