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A close relative that's a professional analyst told me: if you have some unique insight on some specific market, use it on the market! (as long as it is actiona

A close relative that's a professional analyst told me: if you have some unique insight on some specific market, use it on the market! (as long as it is actionable into investment choices) You can likely beat the market and experienced analysts, which often don't have that much technical expertise or outstanding insight (instead relying on economic and financial analysis). The few times I did... it worked.

yellowstuff 6y ago
Hedge funds won’t necessarily have technical experts in every field as employees making investment decisions, but they are paying those people for research. So “more knowledgeable than the average trader” doesn’t mean that you know more than the market is pricing in. That said, the hedge funds with big research budgets focus on large companies, leaving more opportunity in smaller stocks.
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IgorPartola 6y ago
Right, I see this all the time. I never see any examples of what this looks like. Did your friend give you anything regarding that?
YokoZar 6y ago
> ...if you have some unique insight on some specific market, use it on the market! One thing to be cautious of here is that people often overinvest when they have some sort of advantage, and become way too over-leveraged in one single area. I remember a calculation from a college finance class. Imagine you have an otherwise "optimal" portfolio with 1% of its assets in a particular large stock, but you know that the real average returns of that stock are going to be ~2x what the market is expecting. So you recompute the efficient portfolio with this new information and find the new optimal weight of the stock and it's only something like 2-3% despite having a very strong information advantage over the market. But most people would think this sounds crazy. "I've got a crazy inside stock tip that it's worth double what everyone else thinks? Shouldn't I put at least 10% of my money in there?" No. Diversity is a hell of a value-add in a portfolio.

yellowstuff 6y ago

Hedge funds won’t necessarily have technical experts in every field as employees making investment decisions, but they are paying those people for research. So “more knowledgeable than the average trader” doesn’t mean that you know more than the market is pricing in. That said, the hedge funds with big research budgets focus on large companies, leaving more opportunity in smaller stocks.

deleted 6y ago
[deleted]

IgorPartola 6y ago

Right, I see this all the time. I never see any examples of what this looks like. Did your friend give you anything regarding that?

YokoZar 6y ago

> ...if you have some unique insight on some specific market, use it on the market! One thing to be cautious of here is that people often overinvest when they have some sort of advantage, and become way too over-leveraged in one single area. I remember a calculation from a college finance class. Imagine you have an otherwise "optimal" portfolio with 1% of its assets in a particular large stock, but you know that the real average returns of that stock are going to be ~2x what the market is expecting. So you recompute the efficient portfolio with this new information and find the new optimal weight of the stock and it's only something like 2-3% despite having a very strong information advantage over the market. But most people would think this sounds crazy. "I've got a crazy inside stock tip that it's worth double what everyone else thinks? Shouldn't I put at least 10% of my money in there?" No. Diversity is a hell of a value-add in a portfolio.