“Every professional financial adviser knows what it’s like to be Charley Malloy.”
Category: portfolio theory
New From Epsilon Theory: ‘Mental Toughness’
“In investment roles, the need for a short memory, for the ability to come in the next day unchanged and unperturbed by the prior day, seems almost self-evident.”
New From Epsilon Theory: ‘The Acrobat And The Fly’
“Dream out loud, and don’t let the bastards grind you down.”
New From Epsilon Theory: The Many Moods Of Macro
“At their core, most macro models are central banking models and macro managers are carry investors. They willingly tied themselves to success in predicting bank actions, and in so doing had a wonderful stretch of good returns and low correlations with stocks.”
New From Epsilon Theory: Investing With Icarus
“As Narrative abstractions — cartoons — become our short-hand for things that used to have meaning, our models become more and more untethered from the reality they seek to reproduce.”
Epsilon Theory’s Latest: The Icarus Moment
“What if I told you that you’ve been whipsawed by a cartoon, and you’re going to be whipsawed again?”
New From Epsilon Theory: ‘But What Is It, Really?’
“The name of the thing being sold isn’t always a very good representation of what the thing is, sometimes for innocent reasons, and sometimes because crunchy, raw, unboned, real, dead frog doesn’t sound very appetizing.”
Epsilon Theory’s Latest: ‘Good Job!’
“But it doesn’t work. Or at least it doesn’t work anymore.”
Epsilon Theory’s Latest: ‘The Fundamentals Are Sound’
Is inception possible?
New From Epsilon Theory: ‘Things That Go Bump In The Night’
“Why should we pay good money to buy put options as a hedge on our portfolio when the Fed will give us a put option for free? I think this is the most far-reaching and transformative effect of the extraordinary central bank policies of the past eight years — we are no longer afraid of things that go bump in the night.”
Epsilon Theory’s Latest: The Three-Body Portfolio
“In a market, if it matters to someone, it should matter to everyone. And narratives matter to a whole lot of someones.”
From The Epsilon Archives: Gandalf, GZA And Granovetter
“There’s no shortage of ways to autotune our thoughts and behavior as citizens and investors. Scripts, symbols, tribalism. Some come from our own minds and some from external sources. Some we force on others. But we always, always have a choice. Do we allow others to write our scripts?”
Epsilon Theory’s Latest: The Three-Body Problem
“There is a non-trivial chance that structural changes in our social worlds of politics and markets have made it impossible to identify predictive/ derivative patterns.”Â
‘There Is No One Left To Sell’: Mind The Archetypes
“These are the things that fund managers are expected to discuss, and they are often the right things to discuss. But if you have no justifiable idea whether the process itself should or will lead to outperformance, what the hell are you actually measuring?”
Epsilon Theory’s Latest: ‘Clever Hans’
“It’s clearly the playbook for our modern markets, where we are trained by the Nudging Fed and the Nudging Street. We are Clever Hans, dutifully hanging on every word and signal from Janet or Mario or Goldman or Merrill as we stomp out our investment behavior.”
Sheep Logic.
“There’s no domesticated animal species that has had more of a reputational fall from grace than the sheep. To call someone a sheep today is just about the worst insult there is. To call someone a sheep is to call them stupid and — more pointedly — stupidly obedient and in thrall to some bad shepherd.”
The Market In-Itself Myth
“We don’t get to say that “it’s OK†not to understand what moves markets, because every day we are all making bets that say we do.”
Trader: Investors Have Become ‘A Great Passel Of Hogs’ Who Will Be Summarily ‘Butchered’
“In a financial world characterized by central bank front running and put issuing, being a swine has been acceptable behavior. You can play the part and not get slapped. However, as we start to seriously contemplate tapering or, dare I say it, normalizing, the risk becomes that the great passel of hogs does meet their prophesized fate and gets butchered.”
Cassini Died For Macro Fund Managers’ Sins
“When you see a 350-page slide deck justifying a losing position, it makes sense to wonder whether even a fraction of the effort that went into its creation was allocated to considering whether the investment thesis is misguided.”
‘I Can’t Do It’
“I can’t do it. I can’t embrace the machines and the vol selling and the ETF parade and the central bankers’ “communication policyâ€. So I’m NOT happy. I don’t sleep well. I DON’T trust the Fed, much less love them, and I never will.”
Whom Fortune Favors
“What a bunch of superstitious hogwash.”
Chili P is My Signature
“It also makes us inexorably prone to affectation. We must add our own signature, that thing that distinguishes us or our product; the figurative chili-powder-in-the-meth of whatever our form of productive output happens to be.”
You Still Have Made a Choice: The 5 Things that Matter
“It may not be optimal to own the most diversified portfolio you can possibly own, because anti-diversifying decisions might, in fact, be worth it. But it is exactly that thought process that must become part of our code as investors. It’s OK to turn down a free lunch, but you’d damn well better know that what you’re going to spend your money on is better.”
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