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Thinking Fast And Slow by Daniel Kahneman among many other things explores the answers to "Given the same information presented to hedge fund managers, why does
by chx 4y ago
Thinking Fast And Slow by Daniel Kahneman among many other things explores the answers to "Given the same information presented to hedge fund managers, why does one buy and another sell" and concludes relying on extensive research the answer is: their performance can't be distinguished from rolling a dice. The book is very strongly recommended.
- cjr 4y agointeresting.. how would it explain bridgewater / ray dalio's track record etc?
- papercrane 4y agoEven in a purely random model you'd have outliers that over the long term outperformed the market. You'd just expect that to be very rare.
- PaulDavisThe1st 4y agothe classic reply: consider a stock picker who starts with 256 people, tells 128 of them that next week Tesla will go up and Twitter will go down. Whichever happens, take that 128 strong cohort, tell half of them that the next week, Ford goes up and Chrysler goes down. Etc. repeat for 8 weeks. At the end, the stock picker has a true believer: someone who thinks they saw the stock picker successfully "know" for 8 weeks in a row which stocks would go up. Change the numbers around a bit, don't run until the true believer pool size is one, and you've got ... the real world.
- stodor89 4y agoNassim Taleb is merciless towards this kind of people in all of his books.
- throw101010 4y agoI'm wondering, as I read this over and over again about random picks performing as well or even better than professionals in the field, how come we never see rigorous scientifc studies about this for various timescales? If we could really attribute this task to randomness wouldn't this save a lof of money to financial institutions considering how much the same people earn for these tasks?
- orangepurple 4y agoIt's more profitable to sell hope
- PaulDavisThe1st 4y agoThis is what "whole market funds" or "S&P 500 funds" are all about. No stock picking, other than identifying some pre-existing known set of stocks, and just investing in them without discrimination or effort. They have become quite popular over the last 15 years as the "random walk down wall st" idea has spread within (US) culture.
- WalterSear 4y agoI have read, and heard from multiple financial professionals, that these work best in low interest rate bull markets, and are more likely to underperform active management strategies in more turbulent and difficult financial environments, such as the one we are entering.
- zamnos 4y agoThe phase you're looking for is tax loss harvesting. A good money manager on a good fund will be able to take advantage of that in a down market, leading you to greater riches when there's a bull market. You can do it yourself, but you can also pay a professional to do that work for you, hence the fees on a given fund.
- cosmojg 4y agoPeople are willing to pay a premium for good marketing and an air of superiority.
- chx 4y ago> I'm wondering, as I read this over and over again about random picks performing as well or even better than professionals in the field, how come we never see rigorous scientifc studies about this for various timescales? Erm, Kahnemann got a Nobel price in economy for his work with Amos Tversky over a decade which this was a part of. I am not sure what you need here, do you need a list of papers by Kahnemann and Tversky? With Terry Odean thrown in for good measure? I am not sure who the "we" are here who do not see these papers but they do exist.