4 ms·

If you have a tool that can generate great returns, then why fall back to a newsletter?

by idoh 4y ago

muggermuch 4y ago
Great question. If I beat the market by 20% (say SPY generated 0% for the year, very optimistic at this point), and I have allocated $100k to this, I make $20k before taxes. That's less than minimum wage. Meanwhile, allocators expect a track record of at least 3-5 years. Ideally, if I have an asset, I'd like to extract as much revenue as I can. Hope this makes sense.
- Straw 4y ago
  How difficult is it to get investors when you can show your model beats the market consistently? Of course, they have to check your not trading a strategy with extreme tail risk, but here it sounds like that's not the case?
  - muggermuch 4y ago
    It's difficult. We made a lot of pitches. Investors/allocators require a fairly long track record and are extremely reluctant to fund (what they perceive to be) black box strategies.
  - deleted 4y ago
    [deleted]
  - conformist 4y ago
    Very, because historically a levered long position in the market beats the market consistently over long periods. Beating the market turns out not to be a very interesting metric to sophisticated investors.
- xapata 4y ago
  If you're sitting on a gold mine, you can wait 5 years. This does not make sense.
  - muggermuch 4y ago
    Indeed. I haven't shut down development, just shut down the newsletter. I'm continuing to work on it.
    - shadycuz 4y ago
      I'm a self proclaimed world class DevOps engineer. Can I help contribute in order to get access to the model?
      - muggermuch 4y ago
        :) hmu on LinkedIn!
  - deleted 4y ago
    [deleted]
  - M3L0NM4N 4y ago
    You also don't know if your alpha is going to last 5 years. The gold mine can run out of gold.
  - beambot 4y ago
    OP could parlay this experience into a high-paying finance job. Algorithmic edge tends to be short lived.
- YetAnotherNick 4y ago
  Learn about hedging. Basically, for $100k, if your prediction could consistently beat some index, you don't just buy a stock, but you sell some other(short) stock/index at the same time. So you own 0 worth of stock but you get the difference in the increase as your profit. Obviously in real world, you would need some sort of deposit, but you could bet millions for $100k.
  - seanhunter 4y ago
    You're talking about both hedging and leverage and this is a very important difference. Turning a long-only equity strategy into a long/short strategy or an "outperformance" strategy[1] with added leverage can seriously affect the volatility of returns and the risk of ruin so it's really important to understand well before embarking on this, because it will affect position sizing and a bunch of other things. You can indeed bet millions for $100k, but if your strategy has 10% volatility unlevered you can get completely wiped out in doing so whereas the risk of ruin of the unleveraged strategy is far lower. [1] You could say long/short is where you long some things and short some other things generally whereas outperformance is where you long some things and specifically short an index. So in the latter case you are betting on the outperformance of your picks in particular and in the former you are just saying you have the ability to pick both things that go up and things that go down.

If you have a tool that can generate great returns, then why fall back to a newsletter?

by idoh 4y ago

If you have a tool that can generate great returns, then why fall back to a newsletter?

Great question. If I beat the market by 20% (say SPY generated 0% for the year, very optimistic at this point), and I have allocated $100k to this, I make $20k before taxes. That's less than minimum wage. Meanwhile, allocators expect a track record of at least 3-5 years. Ideally, if I have an asset, I'd like to extract as much revenue as I can. Hope this makes sense.

Straw 4y ago
How difficult is it to get investors when you can show your model beats the market consistently? Of course, they have to check your not trading a strategy with extreme tail risk, but here it sounds like that's not the case?
- muggermuch 4y ago
  It's difficult. We made a lot of pitches. Investors/allocators require a fairly long track record and are extremely reluctant to fund (what they perceive to be) black box strategies.
- deleted 4y ago
  [deleted]
- conformist 4y ago
  Very, because historically a levered long position in the market beats the market consistently over long periods. Beating the market turns out not to be a very interesting metric to sophisticated investors.
xapata 4y ago
If you're sitting on a gold mine, you can wait 5 years. This does not make sense.
- muggermuch 4y ago
  Indeed. I haven't shut down development, just shut down the newsletter. I'm continuing to work on it.
  - shadycuz 4y ago
    I'm a self proclaimed world class DevOps engineer. Can I help contribute in order to get access to the model?
    - muggermuch 4y ago
      :) hmu on LinkedIn!
- deleted 4y ago
  [deleted]
- M3L0NM4N 4y ago
  You also don't know if your alpha is going to last 5 years. The gold mine can run out of gold.
- beambot 4y ago
  OP could parlay this experience into a high-paying finance job. Algorithmic edge tends to be short lived.
YetAnotherNick 4y ago
Learn about hedging. Basically, for $100k, if your prediction could consistently beat some index, you don't just buy a stock, but you sell some other(short) stock/index at the same time. So you own 0 worth of stock but you get the difference in the increase as your profit. Obviously in real world, you would need some sort of deposit, but you could bet millions for $100k.
- seanhunter 4y ago
  You're talking about both hedging and leverage and this is a very important difference. Turning a long-only equity strategy into a long/short strategy or an "outperformance" strategy[1] with added leverage can seriously affect the volatility of returns and the risk of ruin so it's really important to understand well before embarking on this, because it will affect position sizing and a bunch of other things. You can indeed bet millions for $100k, but if your strategy has 10% volatility unlevered you can get completely wiped out in doing so whereas the risk of ruin of the unleveraged strategy is far lower. [1] You could say long/short is where you long some things and short some other things generally whereas outperformance is where you long some things and specifically short an index. So in the latter case you are betting on the outperformance of your picks in particular and in the former you are just saying you have the ability to pick both things that go up and things that go down.