A Man Who Abandoned Value

https://www.institutionalinvestor.com/article/b1qmbjmykxql3g/The-Man-Who-Abandoned-Value

by rchaudhary • 5 years ago

51 64 5 years ago

elefanten• 5 years ago

Seems like a case of survivorship bias. Unclear what this guy is doing that's particularly unique.

He invested a lot in Amazon and Tesla, relatively early. Out of everyone investing in the time period, someone was bound to be holding the most of some of the stocks that do crazy things.

Having Asperger's, starting as a CPA, not using value investing, reading Christensen... I doubt any of these are gonna shake up institutional investing.

TimTheTinker2• 5 years ago

The best investment decisions will nearly always look obvious in hindsight.

MegaButts• 5 years ago

You're saying GME wasn't obvious?

smabie7• 5 years ago

Using some simple math (and somewhat inaccurate math), let's calculate the chance of the null hypothesis being true: he has no skill and it is just luck, assuming 10% annualized volatility for the market and 8% annualized return. By my calculation, over the six year period, there's a 4.82e-18 chance that his returns are due to luck and the null hypothesis is true. Of course I'm simplifying a lot, but I think you get the idea.

Also, you don't need to do anything "particularly unique" to generate very impressive returns. No firm (besides maybe RenTec) is doing anything that is truly out there and on another level: employees join and leave, ideas get passed around, etc. And yet, there are many top tier firms that end up hitting out of the park, year after year.

People on HN always make these cheap throwaway comments about "expert coin-flippers" and "survivorship bias" when talking about finance. I'm not sure exactly why, but I think it comes from disdain for finance. I also think that the idea that some people are just better at generating wealth through the markets can be uncomfortable.

Anyways, the chance of his returns being luck is extremely small, any which way you cut it.

weird-eye-issue2• 5 years ago

Your comparison of his investing style to the broad market is incredibly far off. If you want to make calculations at least do it off a more accurate benchmark and not the S&P 500. Something like ARKK or at least QQQ.

n_io• 5 years ago

Although I agree that survivorship bias is a cheaply constructed argument, it’s hard to know how good this fund really is when it’s only been in operation during the greatest bull run of our lifetime.

slibhb• 5 years ago

Unlikely things happen all the time. If he lost money, this article wouldn't exist.

Also, my disdain for this guy is not due to finance. It's due to his investment strategy being a Seinfeld episode:

I just totally gave up and said, "I'm going to do the exact opposite."

robotresearcher• 5 years ago

You can do a similar calculation about a particular shuffled card deck.

Aunche2• 5 years ago

If you're able to tolerate an arbitrary amount of risk, you can potentially achieve absolutely absurd returns with very little skill. You just need to maximize your portfolio's volatility. Find the most volatile stock you can with an upcoming earnings announcement or other catalyst and invest all your money into it. If you didn't lose all your money, sell everything and invest all your money in another volatile stock with an upcoming catalyst. Rinse and repeat. This is how people win stock competitions.

fnordian_slip• 5 years ago

I don't understand you. Why do you dismiss survivorship bias and then do your math without that in mind?

If I read you correctly, you calculated "how likely is it that someone gets these results?". But accounting for survivorship bias, shouldn't it be "how likely is it that someone gets these results?" ?

Maybe I'm reading something wrong here, if so I would be obliged if you could elaborate.

kgwgk6• 5 years ago

What do the volatility and return of the market have to do with anything?

Are you calculating the probability that he did achieve these returns by luck timing the market? That's obviously not what he did.

Picking and holding a stock that did extremely well by over the period is not a one in a quintillion event.

DanielMcLaury3• 5 years ago

From the article:

"Its long/short equity fund gained an astounding 274 percent, thanks in large part to a 700 percent surge in the price of Tesla’s stock, which accounted for 37 percent of Worm’s publicly traded equities portfolio at the end of the third quarter."

This means that, outside of his TSLA position, the rest of his portfolio made about 25%. In a normal year that'd be impressive, but 2020 was a year where SPY was up 15% and there was insane volatility.

So basically this guy gets decent-to-good performance on 3/5 of his portfolio and put the other 2/5 into a blind gamble which turned out to pay off. The chances of that happening by luck aren't "4.82e-18."

billforsternz• 5 years ago

You don't explain how you calculated that number but it seems absurd (presented with absurd over precision). For example, I would be astonished if there aren't individuals, probably 10s or 100s or even 1000s of individuals who followed an "all in on Tesla" strategy that would generate these types of returns. That suggests an absolute lower bound around 1e-8 (very conservatively) before doing any serious analysis.

ramblerman• 5 years ago

You are setting up the experiment as if we took one guy and decided to follow him for 6 years to see if he could beat the market.

Instead a reporter found one out of a couple of million investors who did well the last 6 years and decided to interview him.

I don't see why you feel talking about survivorship bias is unsound in this case.

m0llusk2• 5 years ago

The article does not claim uniqueness, but focuses on the difference between basing investments on exceptionalism rather than value.

Stand out hedge fund performances typically don't translate even to the same or similar hedge funds at different times let alone scaling to the point of 'gonna shake up institutional investing'.

abraxas• 5 years ago

Yeah the best dice thrower, coin flipper on the block. Until he isn't.

jakupovic• 5 years ago

I was with the article until they started talking about using two hands to shave and saving 14hrs a year, that's BS.

ketamine__• 5 years ago

I thought the answer would be laser hair removal for rich people like this guy.

brianmtully• 5 years ago

I've had a 210% year toying around with stocks. I just assumed everyone had been doing well since the drop last March.

fspeech• 5 years ago

Since on average everyone gets the market return someone must be underperforming the market in order for you to be overperforming.

justaguy88• 5 years ago

Or maybe everyone did go up, but just haven't gone down yet in the bubble pop

bpodgursky• 5 years ago

Technically true, but the market as a whole is up so much that I think everyone can be doing well even if a few people are pulling 200% returns.

smabie7• 5 years ago

Most people (at least retail investors) don't measure doing "well" against a benchmark. i.e everyone can be doing well in a bull market.

vinger• 5 years ago

If you include bitcoin.

u678u• 5 years ago

By definition the median investor makes what the total market return is. Something like VTI is up 25% since Jan 1 2020. If tech investors outperformed a lot, there are lots of boomers who haven't kept up.

somjeed• 5 years ago

top signals for 600, Alex

robinjhuang• 5 years ago

Post rationalization and hindsight bias imo

jdmoreira2• 5 years ago

Ok, so he did well for a few years in a bull market.

anyone can make money in a bull market. You just buy on hype and sell on higher hype. It’s called momentum trading.

Call me when he beat the market for 40 years and I'll be impressed.

vasco• 5 years ago

And in the game where "anyone could make money", they did the most of all the funds that were assessed. If that doesn't count for something, what does?

jdmoreira2• 5 years ago

A lot of people made a lot of money just before the dot-com boom... And then they lost it all.

It’s trivial to make a lot of money short-term and he was just the best at it. Now if he is still having 200% returns after a full-cycle, now that’s impressive.

DanielMcLaury3• 5 years ago

"He took big, and early, stakes in both Amazon and Tesla — in 2012 and 2016, respectively."

Amazon was founded in 1994 and had its IPO in 1997 during the first dot com boom. Did they do any research for this article at all?

Clewza313• 5 years ago

Today the online juggernaut is the most conventional — and most popular — hedge fund stock in the world, but when Alsin first invested in it the smart money was skeptical. After all, the company wasn’t profitable.

If you look at AMZN's stock price, he timed it pretty well: he presumably bought in around $200 before it really started taking off. If he had bought in 5 years earlier, that would have netted "only" an extra 100%.

yellowstuff• 5 years ago

Institutional Investor is targeted at people who work in finance, and I think "early" is meant in the sense of being early to trade a particular stock or theme that later becomes popular. So being "early" to GME would mean a month ago, not early relative to the IPO.

WA2• 5 years ago

Yes yes, survivorship bias, but the problem is actually interesting in several aspects:

1. On an individual level, it's impossible to distinguish between survivorship bias and doing things right. If you are the surviving one, did you do things differently or did you just get lucky? In a coin-toss competition, the answer is obvious. When it comes to stocks, it's not.

Because:

2. The general (academic) consensus to differentiate between luck and skill when it comes to investing is: Can you be profitable for a long period of time? But do you really need to prove yourself over and over that you have the skill? What if you had the skill only once, to predict one certain event and have tremendous gains with it? Apparently, this is considered "luck" and not "skill" when it comes to investing. Which I find odd.

Add the nonlinear utility of money: Your first million makes the biggest impact on your life, especially if you earn it early in life. Buying an ETF sets you up for a good retirement (probably, maybe), but the GME stock picking YOLO might put you on a different trajectory.

3. When it comes to finance and investing, we all know the academic view: passive investing / buy & hold is king, you can't predict the winners. All true of course, but the problem is: there is no resolution to this. You can say that, in hindsight, buy & hold returned X% on average over the last 50 years, but have to warn that "past performance is no indication for future performance". And ultimately, you can calculate your true performance only if you realize profits to do something with it in life or if you are about to die.

So, on an individual level, you have two choices:

- Buy and hold a passive index fund and hope that the performance of the last X years is indicative for the future performance, because that's how the stock market works (or whatever).

- Expose yourself to luck/chance/positive black swans by doing some skilled or unskilled stock picking that has potential to put you on another trajectory in life.

Cicero22• 5 years ago

- Expose yourself to luck/chance/positive black swans by doing some skilled or unskilled stock picking that has potential to put you on another trajectory in life.

If the goals to expose yourself to luck, why not just purchase lottery tickets then?

WA2• 5 years ago

You could, just a different kind of risk/chance. I guess most people want better odds than the lottery gives.

m0llusk2• 5 years ago

"I have lived too long with cautious thinking. Now I will make myself mad." --Rumi

A Man Who Abandoned Value

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