Dashboard

Now you are in the subtree of TECHNOLOGY and MARKETS public knowledge tree. 

Mauboussin - alpha, tails,

https://hurricanecapital.wordpress.com/2015/02/01/links-michael-j-mauboussin/

Mauboussin on 4 alphas... +Jim Simons

Small and unsophisticated investors should build passive portfolios with an emphasis on asset allocation and
low costs. Sophisticated investors should seek active managers in asset classes with high dispersion. There
are ways to assess money managers beyond past performance that may shade the odds in your favor.

Active managers must constantly consider who is on the other side of the trade. Research shows that
fundamental money managers who take a long view and are truly active can deliver excess returns. It is
essential to identify a repeatable source of edge, and to align the investment process to capture that edge.

What’s key is that crowds are wise under some conditions and mad when any of
those conditions are violated

Remember the line from Seth Klarman: You are looking for cases where uniform belief has led to a
mispricing of expectations and thus a way to make money. The Triple Crown contenders show this vividly.

complacency by Dalio probably had a bit of an exaggerated effect on the pricing of assets

WHO IS ON THE OTHER SIDE?

Behavioral inefficiencies may be at once the most persistent source of opportunity and the most
difficult to capture. Many behavioral inefficiencies emanate from the psychology of belief
formation and the psychology of decision making.

  • Analytical

having more
analytical skill, weighing information differently, updating views more effectively, operating on a
different time scale, or anticipating a change in the market’s narrative

  • Behavioural

emanate from the psychology of belief
formation and the psychology of decision making. It is essential to remember that these
inefficiencies are generally the result of collective, not individual, actions

  • Informational

  • Technical

Technical inefficiencies can generate excess returns for investors on the other side of forced
sellers or buyers, on the correct side of securities perturbed by investor fund flows

Fat Tails and Nonlinearity