Monday
Dec162013

Sunday Night Soul - A Man Sat Alone

A Man sat alone, drenched in deep sadness.

And all the animals drew near to him and said, 

"We do not like to see you so sad. Ask us for whatever you wish and you shall have it." 

The Man said, "I want to have good sight." The vulture replied, "You shall have mine." 

The Man said, "I want to be strong." The jaguar said, "You shall be strong like me." 

Then the Man said, "I long to know the secrets of the earth." The serpent replied, "I will show them to you." 

And so it went with all the animals. And when the Man had all the gifts that they could give, he left. Then the owl said to the other animals, 

"Now the Man knows much, he'll be able to do many things. Suddenly I am afraid." 

The deer said, "The Man has all that he needs. Now his sadness will stop." 

But the owl replied, "No. I saw a hole in the Man, deep like a hunger he will never fill. It is what makes him sad and what makes him want. He will go on taking and taking, until one day the World will say, 'I am no more and I have nothing left to give." 

 

From the movie Apocalypto.

 

Wednesday
Dec112013

Marty "The Pitbull" Schwartz Speaks at Amherst College

Marty Schwartz, author of Pitbull, a classic trading book, gave a speech to students at Amherst College this year. It's good and personally I like his attitude. Check it out.

 

Here are my favorite parts of the speech:

 

"Do the work."
"I'm not a corporate type. I'm an entrepreneur, lone wolf type. Iwanted 100% of profits. I wanted all of the action."
"I call myself a synthesizer...what I did was take various approaches of other people and I made it into my own amalgamation."
"Continually evolve and adjust."
"Fundamentals will take you to the spots you want to look...The reason I became a trader, like I already told you, is that I'm an inveterate gambler."
"It is extremely important to be honest with yourself. You have to look at your personality and choose something that fits who you are."
"Divorcing your ego from the trade is critical."
"I had six job offers; I'll give you a line I always recommend you use: "We're not interviewing..." "But somebody gave you your first break..." I would always talk myself into the door.

 

Thursday
Dec052013

How do Hedge Fund "Stars" Create Value? Evidence from Their Daily Trades

An interesting paper worth a read. Here's the abstract:

 

I use transaction-level data to investigate the magnitude and source of hedge funds' equity trading profits. Bootstrap simulations indicate that the trading profits of the top 10% of hedge funds cannot be explained by luck. Similarly, superior performance persists. Outperforming hedge funds tend to be short-term contrarians with small price impacts, and their profits are concentrated over short holding periods and in their more contrarian trades. Further, I find that performance persistence is significantly stronger for contrarian funds with small price impacts. My findings suggest that liquidity provision is an important channel through which outperforming hedge funds persistently create value.

 

And part of the conclusion that I found worth noting:

 

All of these findings are consistent with the notion that star hedge funds profit from liquidity provision. In addition, my evidence is largely inconsistent with alternative sources of profitability, such as shareholder activism, insider trading, or skilled processing of public information.

 

Nothing new under the sun.

 

 

 

 

Wednesday
Aug282013

Starting Over

It has been over a year since the last post. That year flew by, but now I'm starting over. I'll be posting trading ideas, theories, links, and write about whatever I think will make me a better trader and investor and hopefully share some insights with others along the way. I plan on writing this blog until I am able to get into the trading/investment industry and will be posting a couple of entries per week. And the rest, as they say, is history.
Tuesday
Aug072012

Interview With a High Frequency Trader

From Zero Hedge

Some parts that stood out to me...

TCR: It sounds like the average investor is seriously outgunned. But what about a retail investor with a longer timeframe who only makes 1-2 trades a month? Does he need to worry about high-frequency trading?

GARRETT: HFT affects all investors to an extent, because stocks are now priced differently than in the past. The market used to consist mostly of investors analyzing cash flows and balance sheets, trying to calculate a company’s fair value. HFTs, on the other hand, react to movements in stock prices alone. That is not necessarily a bad thing, but since HFTs are responsible for two-thirds of the trading volume, we have the strange situation where they can set the price based on what they perceive others’ perceptions to be.

 

GARRETT: Exactly. Fundamental investors used to dominate the market. They would buy and sell based on companies’ results.

Today, HFTs outnumber humans in trade volume and thus are a stronger force on prices. HFTs buy and sell based on what they perceive others’ perceptions to be, as quirky as that sounds. So instead of analyzing revenue and expenses, computers analyze how other market participants act, and trade accordingly.

 

TCR: It seems that normal investors can counteract this by investing for the long term. HFTs create a lot of noise, trying to guess what other traders will do. But ultimately, if a company is profiting, its stock will do well.

GARRETT: Precisely. You don’t want to get into a trading battle with them. But if you have a long-time horizon, fundamental investing can still work.

 

Just waiting for Knight Capital redux. To speculators: stop using hard stops. They're dead.