Finally, someone admits it: It's hard to beat benchmarks that only go higher. When you include reinvested dividends, it's damn near impossible. Before I go any further, I implore you: Don't take that as some kind of derogatory assessment of active management. It's not that. And I certainly don't mean to suggest that exploiting tactical opportunities for outsized gains isn't possible. It most assuredly is. And, depending on who you are, employing some form of active management may be unavoidable
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4 thoughts on “Vegas

  1. On low AUM you can scale up gains of an in/out strategy that technically underperforms (preferably not by Sharpe, though). Not that leverage isn’t potentially harmful.

    If you’re e.g. Buffet’s size you might as well buy SPY and go play golf.

  2. Time in the market vs. timing the market. Some trading aphorisms are aphorisms for good reasons…

    … then again I’d really like to learn more about Renaissance Technologies algos… 🙂

  3. I used to love to do lots of fundamental research and find a stock that was not loved. Very time consuming and stressful- but I “got lucky” on a few. I was also “unlucky” too- but net, net “lucky”.
    Now I am mostly in SPY plus a few dividend and a few tech favorites. The most stressful time, for me, regarding investing was between Feb. 2020 – when I went 100% to cash and September/October, 2020 when I went back to almost 100% stocks.
    Now, I “stay tuned in” to the big picture and am prepared to be rational even if everyone around me is yelling “fire”.
    I would rather cut my living expenses a little than swing for the rafters. I sleep better, too.

  4. The SPX is a effectively a short volatility trade. Like all short vol/carry vehicles it offers incremental gains that is punctuated by sharp drawdowns. Generally, the fragility of the eco-system is underestimated. Because this is building cycle over cycle the leverage and liquidity that enable all these short vol trades—SPX, HY, EM credit ect—is probaby never been larger thanks to central banks. Yeah, ride the wave but understand the tail risks that you are taking with this strategy. It is probably more fragile than you think because while the Fed has suppressed volatility in financial series they have effectively transferred it to the realm of social/political realms which seems a fairly obvious observation which I believe Chris Cole has made on several occassions.

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