Thought Bubbles from the Deep

[DeepState]

IMO, macro, hedge fund type strategies that require a high degree of conviction to hold are best done by... hedge funds who manage OTHER people's money.

For my own money, I prefer a journey requiring less conviction, especially when the positions go against me.

Then again, I don't have a eight-figure sum to invest and worry about. So different horses and courses.

Thanks.

Your comment made me wonder why such strategies should necessarily require higher conviction than any other strategy. To me, it's just another source of premium, like the kind of return you might expect for risk bearing in equities (without any particular alpha insight). If there is a return to it, it is fair game to me, with the main consideration thereafter being risk management within the context of a wider portfolio. Liquidity isn't an issue for DM currencies even in the billions of notional exposure. No-one is going to notice anything when I do my two cents of movement.

You'd need a lot of conviction to hold a lot of this at risk, for sure. But, in the 'appropriate' weight, why should it require any more conviction to do this than buy-hold equities? Certainly, my conviction in carry/momentum is somewhat less than for equity risk premium and position sizes reflect it in terms of risk exposure. I have more conviction in this than getting a decent return from duration, for example. To give you some feel for this, a 2std devn move on an annual basis represents +/- 0.5% of total assets at present. Just another tiny piece in the puzzle requiring little maintenance. No killer if we encounter a 6std devn event... Four currency pairs are currently in place, the major positions being updated with stops each couple of days, reviewed every couple of weeks by algo. That's the plan anyway.

Then I moved on....why is it that some positions are more comfortable to hold when things move against you? Perhaps it occurs when you have some sort of conviction around an underlying valuation. You can get this if this concept is used in equities or certain other assets. Carry/Momentum has no such grounding. If things move against you, they just move against you. There is no reason why the concept just became an even greater bargain. Is this why you feel that this kind of position requires higher conviction, or is otherwise less comfortable, when things move against you?

On the upside, the more I lose, the more agile I become....erghhhh.


PS. Any comments I have made about my portfolio size are deliberately vague. Whether I have 6 or 10 figures in assets (with or without decimal points) remains open. In a Greenspan like comment, if you think you know what I have in assets, you have misunderstood what I was saying.

 

[DeepState]

We're off....and having a bad start....erghh I hate this already.

:guitar:

 

[DeepState]

Improving the quality of your day:

Hi. Just doing a stock-take of how I spend a day. Current Status: Improvement Needed.

1. How do you go about trying to get the most value out of your day? This is not necessarily about spending time in markets.... I mean, how do you go about making the most of a day so that, over time, you are doing and achieving what is right and valuable for you? Work, play, health..etc.

2. What are the thieves of your goals? eg. procrastination etc. How do you keep them at bay?

3. How do you decide what to shoot for?

 

[tech/a]

(1) Delgation
(2) Prioritization Perato Principal
(3) Planning
(4) Pleasure


In no particular order

Time thieves
Making time available
To tasks/people/ which should be delegated.

Your post is a timely reminder.

 

[skc]

Then I moved on....why is it that some positions are more comfortable to hold when things move against you? Perhaps it occurs when you have some sort of conviction around an underlying valuation. You can get this if this concept is used in equities or certain other assets. Carry/Momentum has no such grounding. If things move against you, they just move against you. There is no reason why the concept just became an even greater bargain. Is this why you feel that this kind of position requires higher conviction, or is otherwise less comfortable, when things move against you?

Yes. You've nailed it there. Grounding is a good word. I've always thought that FX is the instrument with no grounding. It probably has some longitudinal grounding (i.e. if it's worth X yesterday, and with news such and such, it should worth something > X). But if you are worrying about the "boil frog"... FX is probably the instrument best at boiling it to a tender juicy perfection.

 

[DeepState]

I think everyone should read the richest man from Babylon. Lots of wisdom in there and certainly should be part of every education (be it formal or informal).

This really was worth reading. Thanks for the lead.

Need to start teaching the kids about it. I asked what their school was teaching them. Beyond getting a savings account and putting money in it from time to time, not much else. Need to take up the slack.

Lots of parable stuff in there, good stuff. Lots resonated. Much is a reminder of the basics and the need to keep it simple. As I was reading, it occurred to me that, although the approach of the examples in there for lending were very debt oriented, the principles definitely apply to investment in equities as well.

 

[DeepState]

Outright Equity Shorts. Going to create a book.

Any favourite stocks you love to hate out there?

 

[systematic]

(Just for fun, I don't know a thing about shorting)...ran a couple quick numbers, and from ASX200 came up with for closer inspection - PDN Palladin, BKN Bradken (which went up today, if you like that sort of thing) and PGH Pact Group Holdings.

 

[The Falcon]

A talk by Howard Marks at Google on 27 March on "the most important thing". Long but entertaining, bear with it.

https://m.youtube.com/watch?v=6WroiiaVhGo

Really good stuff... I think you will enjoy it DV.

 

[DeepState]

(Just for fun, I don't know a thing about shorting)...ran a couple quick numbers, and from ASX200 came up with for closer inspection - PDN Palladin, BKN Bradken (which went up today, if you like that sort of thing) and PGH Pact Group Holdings.

Thx. What abt these made it through your screens For highlighting?

 

[DeepState]

A talk by Howard Marks at Google on 27 March on "the most important thing". Long but entertaining, bear with it.

https://m.youtube.com/watch?v=6WroiiaVhGo

Really good stuff... I think you will enjoy it DV.

Thanks. I read his book a couple of years ago and you've prompted me to review my notes again, which I have done just then. He is so clean in his thinking. I enjoy the overlap which I get fron reading different viewpoints. At the intersection of these viewpoonts are just wonderful things.

 

[systematic]

Thx. What abt these made it through your screens For highlighting?

Financial statement only - nothing outside of that (macro, opinion, news etc) and no momentum considerations (seemed boring). In hindsight (it was late) I probably should have looked a bit more for, "expensive" - I was just looking mainly at negative financial info. I might think about what should go into the soup more constructively if I get a chance over the weekend. Something similar to Montier's "unholy trinity" (proxies for bad value, bad fundamentals, bad management decisions). Except I wouldn't rely on just single measures of these things but come at it from a multi-angled approach. Don't think I'd want to go short in this market though, if I was into that sort of thing...

 

[systematic]

Outright Equity Shorts. Going to create a book.

Whilst we're talking about it - what's the idea/thought here?

 

[systematic]

BKN Bradken (which went up today, if you like that sort of thing)

Stop loss, anyone?

 

[The Falcon]

Thanks. I read his book a couple of years ago and you've prompted me to review my notes again, which I have done just then. He is so clean in his thinking. I enjoy the overlap which I get fron reading different viewpoints. At the intersection of these viewpoonts are just wonderful things.

As a low IQ investor I find that Howard is just a bit too smart for me....and leaves me with more questions than answers, which is a healthy thing of course. Investing is exceptionally hard, and to think otherwise betrays a lack of depth of thought.

 

[galumay]

Really good stuff... I think you will enjoy it DV.

It was a great video, Falcon, thanks for the link, I read his memos on the Oaktree site but didnt realise he had written a book. Really interesting stuff.

 

[DeepState]

Whilst we're talking about it - what's the idea/thought here?

Shorts, as part of a wider investment portfolio, are a field where simple screens can work particularly well (things like Montier's ideas). It appears more likely for a company that screens out as having poor prospects to turn out that way than for the mirror (buying what appear to be good companies). As most of the big end of town are long-constrained mandates or otherwise restricted for issues of liquidity, an opportunity may be available for short sellers who do not have such constraints. Still, it's not exactly money sitting on a streetside gutter for collection.

 

[The Falcon]

It was a great video, Falcon, thanks for the link, I read his memos on the Oaktree site but didnt realise he had written a book. Really interesting stuff.

DV and Galumay you might also like this one, its the same book related theme but Marks has so much experience and knowledge to share he ends up covering different ground in every interview. Interviewer is a twat though!

https://vimeo.com/87644595

 

[systematic]

Shorts, as part of a wider investment portfolio, are a field where simple screens can work particularly well (things like Montier's ideas). It appears more likely for a company that screens out as having poor prospects to turn out that way than for the mirror (buying what appear to be good companies). As most of the big end of town are long-constrained mandates or otherwise restricted for issues of liquidity, an opportunity may be available for short sellers who do not have such constraints. Still, it's not exactly money sitting on a streetside gutter for collection.

Hmmm...seems like fun; might have a bit of a look - maybe run a thread.

With shorts, I keep thinking of market state...must've been something I read.

I agree with:

It appears more likely for a company that screens out as having poor prospects to turn out that way than for the mirror

based on the biggest winners are all over the place (valuation), whereas the losers have a way bigger proportion of "expensive" among them (than random).

What's your universe? Do you have a list / index?

 

[DeepState]

Hmmm...seems like fun; might have a bit of a look - maybe run a thread.

With shorts, I keep thinking of market state...must've been something I read.

I agree with:
based on the biggest winners are all over the place (valuation), whereas the losers have a way bigger proportion of "expensive" among them (than random).

What's your universe? Do you have a list / index?

Going to start creating my sub-universe in the next few weeks. It will take a couple of days to code it up...well, it can be done in a few hours because it doesn't need 'code' when it boils down to it for the initial phase. Better analytics can be built over time and when the approach gains greater stability.

The proposed methods won't be a surprise to a guy like you. There really is no need to hyper-engineer this stuff in any case. I want to get a 20-30 stock list for closer inspection from these screens (7-10% most trashy), then manual inspection to find the trashiest of the trashy and to determine portfolio risk management issues. Rinse and repeat maybe monthly (multi-month time frames for a position is what I anticipate and seek). Looking for 5-10 names at any given time.

In order to short, you must get borrow. I figure an ASX 300 universe is as good a place to start. IG seems to be able to source stuff despite not advertising it. [For example, I was able to obtain borrow for VET-AU despite the sign saying "unborrowable". Same deal with MVF-AU when it was initially listed.]