4 ms·

This is going to sound crazy given all the scams out there. But I was interested in testing the idea of small compounding returns. Like, could you get a daily 0

by _zkyx 3y ago

This is going to sound crazy given all the scams out there. But I was interested in testing the idea of small compounding returns. Like, could you get a daily 0.5% compounding return. Sure, you could go all in on TSLA for example and get a 1% daily return. But, could you do that with automation, using lots of small bets, across the entire market. You can, but there is a scale issue here. In that you need to make exponentially large bets as your bank roll increases. So, it's capped. Well, that's what I've seen. So, yes you can beat it but only with smaller amounts of money.

makestuff 3y ago
That makes sense to me and lines up with what buffet says about there are alot of people on wall street who can average 50% returns with 100k but once it gets into the millions it is much harder to find alpha.
- mhh__ 3y ago
  One of the issues arbitrageurs have is that as they get good and bigger they can run out of things to arbitrage.
- cholmon 3y ago
  I don't follow Berkshire Hathaway much, so I'm not aware of what Warren Buffet has said on this topic, but it sounds super interesting. After a bit of digging, I found this Q&A from the 2019 shareholder meeting: https://www.youtube.com/watch?v=geRIJQJXRVo&t=17980s https://www.youtube.com/watch?v=geRIJQJXRVo&t=17980s And the meeting minutes in PDF form (see page 120, question #32): https://s3.amazonaws.com/static.contentres.com/media/documents/0a11de45-f116-4978-9a9d-fa2b5a0788a8.pdf https://s3.amazonaws.com/static.contentres.com/media/documen... The text from that document... 32. It’s easy to make 50% on a million, but much more difficult on larger amounts WARREN BUFFETT: Station 9. We’re just about — yeah, we’ve got time for a couple more. AUDIENCE MEMBER: My name is John Dorso (phonetic), and I’m from New York. Mr. Buffett, you’ve said that you could return 50 percent per annum if you were managing a one-million-dollar portfolio. What type of strategy would you use? Would you invest in cigar butts, i.e., average businesses at very cheap prices? Or would it be some type of arbitrage strategy? Thank you. WARREN BUFFETT: It might well be the arbitrage strategy, but in a very different, perhaps, way than customary arbitrages, a lot of it. One way or another, I can assure you, if Charlie was working with a million, or I was working with a million, we would find a way to make that with essentially no risk, not using a lot of leverage or anything of the sort. But you change the one million to a hundred million and that 50 goes down like a rock. There are little fringe inefficiencies that people don’t spot and you do get opportunities occasionally to do, but they don’t really have any applicability to Berkshire. Charlie? CHARLIE MUNGER: Well, I agree totally. It’s just you used to say that large amounts of money, they develop their own anchors. It gets harder and harder. I’ve just seen genius after genius with a great record and pretty soon they’ve got 30 billion and two floors of young men and away goes the good record. That’s just the way it works. It’s hard as the money goes up. WARREN BUFFETT: When Charlie was a lawyer, initially, I mean, you were developing a couple of real estate projects. I mean, if you really want to make a million dollars — or 50 percent on a million — and you’re willing to work at it — that’s doable. But it just has no applicability to managing huge sums. Wish it did, but it doesn’t. CHARLIE MUNGER: Yeah. Lee Louley (phonetic), using nothing but the float on his student loans, had a million dollars, practically, shortly after he graduated as a total scholarship student. He found just a few things to do and did them.
  - tiahura 3y ago
    So flip houses and do the work myself?
  - lextuto 3y ago
    Munger was referring to Li Lu[0]. [0]: https://en.wikipedia.org/wiki/Li_Lu https://en.wikipedia.org/wiki/Li_Lu
the__alchemist 3y ago
> Like, could you get a daily 0.5% compounding return It seems that this is the key to your approach. How is this part achieved?
- _zkyx 3y ago
  That's sort of the secret sauce. But, having a platform like this is more than 75% of the solution. The rest is more around trend following.
  - stouset 3y ago
    It’s also stunningly easy to convince yourself you have a profitable algorithm when you actually have a money loser. Gaining 0.5%/day 60% of the time and breaking even 39% of the time looks great until you run into the 1% of the time where you lose 50%.
    - _zkyx 3y ago
      Yes, 100%. Like I said in the article there. I once lost like 40% in a few minutes in the pre-market because my app didn't have the correct sell logic. Honestly, I don't even know if I had the correct logic that would have even saved me, because the market was falling so quickly I probably could not have even for the fills I wanted. So, I've moved to breaking things into tons of small bets and really trying to manage risk.
  - the__alchemist 3y ago
    I tend to frame it as the secret sauce is 99% of the solution, and the platform/API-interaction is trivial, as the term is used in science.
    - _zkyx 3y ago
      Yeah, you could look at it like that too. But you need to have a platform before you can even do something like this. So, that's why I framed it like that.
mhh__ 3y ago
https://en.m.wikipedia.org/wiki/Martingale_(betting_system) https://en.m.wikipedia.org/wiki/Martingale_(betting_system)
rgbrenner 3y ago
Just want to point out with 260 working days in the year: 1.005^260 = 366% and 1.01^260 = 1329% In case anyone sees "0.5%" _daily_ and thinks low risk.
- _zkyx 3y ago
  Yeah, I'm not saying this is low risk. It's more about trying to build a system to be in the right place at the right time. It is massively risky. I was sort of hesitant to even write that comment because you constantly see all these youtube day traders selling courses on making 1% daily. If you try that you'll lose money extremely quickly.
lextuto 3y ago
This comment made me think of the tax advantage of buy-and-hold versus lots of small bets. Buffett also talks about this in his Berkshire shareholder letters.[0] [0]: Link to my (non-monetized and WIP) blog where I keep a collection of excerpts: https://sileret.com/projects/warren-buffet-shareholder-letters/1993ltr/#advantages-of-buy-and-hold-investing-for-tax-paying-investors https://sileret.com/projects/warren-buffet-shareholder-lette...

by _zkyx 3y ago

makestuff 3y ago

That makes sense to me and lines up with what buffet says about there are alot of people on wall street who can average 50% returns with 100k but once it gets into the millions it is much harder to find alpha.

mhh__ 3y ago
One of the issues arbitrageurs have is that as they get good and bigger they can run out of things to arbitrage.
cholmon 3y ago
I don't follow Berkshire Hathaway much, so I'm not aware of what Warren Buffet has said on this topic, but it sounds super interesting. After a bit of digging, I found this Q&A from the 2019 shareholder meeting: https://www.youtube.com/watch?v=geRIJQJXRVo&t=17980s https://www.youtube.com/watch?v=geRIJQJXRVo&t=17980s And the meeting minutes in PDF form (see page 120, question #32): https://s3.amazonaws.com/static.contentres.com/media/documents/0a11de45-f116-4978-9a9d-fa2b5a0788a8.pdf https://s3.amazonaws.com/static.contentres.com/media/documen... The text from that document... 32. It’s easy to make 50% on a million, but much more difficult on larger amounts WARREN BUFFETT: Station 9. We’re just about — yeah, we’ve got time for a couple more. AUDIENCE MEMBER: My name is John Dorso (phonetic), and I’m from New York. Mr. Buffett, you’ve said that you could return 50 percent per annum if you were managing a one-million-dollar portfolio. What type of strategy would you use? Would you invest in cigar butts, i.e., average businesses at very cheap prices? Or would it be some type of arbitrage strategy? Thank you. WARREN BUFFETT: It might well be the arbitrage strategy, but in a very different, perhaps, way than customary arbitrages, a lot of it. One way or another, I can assure you, if Charlie was working with a million, or I was working with a million, we would find a way to make that with essentially no risk, not using a lot of leverage or anything of the sort. But you change the one million to a hundred million and that 50 goes down like a rock. There are little fringe inefficiencies that people don’t spot and you do get opportunities occasionally to do, but they don’t really have any applicability to Berkshire. Charlie? CHARLIE MUNGER: Well, I agree totally. It’s just you used to say that large amounts of money, they develop their own anchors. It gets harder and harder. I’ve just seen genius after genius with a great record and pretty soon they’ve got 30 billion and two floors of young men and away goes the good record. That’s just the way it works. It’s hard as the money goes up. WARREN BUFFETT: When Charlie was a lawyer, initially, I mean, you were developing a couple of real estate projects. I mean, if you really want to make a million dollars — or 50 percent on a million — and you’re willing to work at it — that’s doable. But it just has no applicability to managing huge sums. Wish it did, but it doesn’t. CHARLIE MUNGER: Yeah. Lee Louley (phonetic), using nothing but the float on his student loans, had a million dollars, practically, shortly after he graduated as a total scholarship student. He found just a few things to do and did them.
- tiahura 3y ago
  So flip houses and do the work myself?
- lextuto 3y ago
  Munger was referring to Li Lu[0]. [0]: https://en.wikipedia.org/wiki/Li_Lu https://en.wikipedia.org/wiki/Li_Lu

the__alchemist 3y ago

> Like, could you get a daily 0.5% compounding return It seems that this is the key to your approach. How is this part achieved?

_zkyx 3y ago
That's sort of the secret sauce. But, having a platform like this is more than 75% of the solution. The rest is more around trend following.
- stouset 3y ago
  It’s also stunningly easy to convince yourself you have a profitable algorithm when you actually have a money loser. Gaining 0.5%/day 60% of the time and breaking even 39% of the time looks great until you run into the 1% of the time where you lose 50%.
  - _zkyx 3y ago
    Yes, 100%. Like I said in the article there. I once lost like 40% in a few minutes in the pre-market because my app didn't have the correct sell logic. Honestly, I don't even know if I had the correct logic that would have even saved me, because the market was falling so quickly I probably could not have even for the fills I wanted. So, I've moved to breaking things into tons of small bets and really trying to manage risk.
- the__alchemist 3y ago
  I tend to frame it as the secret sauce is 99% of the solution, and the platform/API-interaction is trivial, as the term is used in science.
  - _zkyx 3y ago
    Yeah, you could look at it like that too. But you need to have a platform before you can even do something like this. So, that's why I framed it like that.

mhh__ 3y ago

https://en.m.wikipedia.org/wiki/Martingale_(betting_system) https://en.m.wikipedia.org/wiki/Martingale_(betting_system)

rgbrenner 3y ago

Just want to point out with 260 working days in the year: 1.005^260 = 366% and 1.01^260 = 1329% In case anyone sees "0.5%" _daily_ and thinks low risk.

_zkyx 3y ago
Yeah, I'm not saying this is low risk. It's more about trying to build a system to be in the right place at the right time. It is massively risky. I was sort of hesitant to even write that comment because you constantly see all these youtube day traders selling courses on making 1% daily. If you try that you'll lose money extremely quickly.

lextuto 3y ago

This comment made me think of the tax advantage of buy-and-hold versus lots of small bets. Buffett also talks about this in his Berkshire shareholder letters.[0] [0]: Link to my (non-monetized and WIP) blog where I keep a collection of excerpts: https://sileret.com/projects/warren-buffet-shareholder-letters/1993ltr/#advantages-of-buy-and-hold-investing-for-tax-paying-investors https://sileret.com/projects/warren-buffet-shareholder-lette...