Airplane Reads

Read a couple fun reads on the plane, both focusing on investing anomalies (one quant equity, one all trading).

Both fun reads!

The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies


Beyond the Random Walk: A Guide to Stock Market Anomalies and Low-Risk Investing 

GDP Weighted Yield Curve, Real Interest Rates, and Shiller P/E

I was going to construct all three of these for say G-7 and maybe G-20 (with both combos and individually by country), but before I do is there a resource that updates them already?

I know Hussman and Fisher talk about them a bit, and maybe they are on Bloomy but I have yet to be able to find them yet…

How Will You Measure Your Life? (or, Staying out of Jail)

Interesting interview with Raj out of Newsweek today.  Back when I was really starting to look into 13F data mining I always would poll hedgie friends where they would most like to have their money and Galleon would always come up.  Oddly, it was always one of the very worst to clone (to which I just attributed, incorrectly,  that they were trading too much).

I just recently learned of (another) friend/acquaintance getting arrested lately.  Shockingly to me, I have known an unfortunate amount of people that have been in jail for various reasons. When I was interviewing with hedge funds coming out of college I got fairly far along with a biotech hedge fund that was seeded by Soros.  Long story short, I didn’t get the job – which turned out to be a godsend when the PM and CFO “inadvertantly” bought up about 70% of two biotech stocks without ever disclosing the stakes.  Needless to say they both paid some fines and spent some time in jail (may still be there, I’m not sure).

From Clay Christensen’s address to the 2010 HBS class (a very highly recommended read “How Will You Measure Your Life?“):

“On the last day of class, I ask my students to turn those theoretical lenses on themselves, to find cogent answers to three questions: First, how can I be sure that I’ll be happy in my career? Second, how can I be sure that my relationships with my spouse and my family become an enduring source of happiness? Third, how can I be sure I’ll stay out of jail? Though the last question sounds lighthearted, it’s not. Two of the 32 people in my Rhodes scholar class spent time in jail. Jeff Skilling of Enron fame was a classmate of mine at HBS. These were good guys—but something in their lives sent them off in the wrong direction.”

All Things Bridgewater


Nice chat on the machines and the d-process with Charlie Rose, and lots more links and reading on Hedge Fund Letters:



40% Returns over 20 Years

(One of the benefits of being in freezing Berlin for the week is that I am getting a lot of writing done.  Just finished a paper on investing in stocks and hopefully it will be out soon.  What a beautiful city this is (as was Paris), and looking forward to some great food, beer, and meetings this week.)

I like reading Joel Greenblatt’s books, and there is a nice summary from the recent VIC where Greenblatt presented here (referring to Tilson’s Value Investing Congress, different than Greenblatt’s Value Investing Club (recent post here) which is confusing since Greenblatt is speaking at Tilson’s).  I often see references to Greenblatt’s Gotham Capital returns over 20 years – 40% a year.  If true, those are some of the best returns in the history of markets.  Indeed, an investor in his fund would have seen returns of almost two orders of magnitude above his initial investment.  ie assuming the fund was started at a reasonable $10mln, after 20 years it would be worth $8.4 BILLION.  That is without any withdrawls or additions of course.  Although my best guess is that the fun was small, existed largely during the go-go ’80s and ’90s, maybe used a little leverage, and paid out regular distributions.  Regardless, those are awesome numbers.

To see just how difficult that is check out the great blog post by my buddy Wes at Turnkey Analyst:  Mission Impossible:  Beating the Market Over Long Periods of Time.  (Also lots in the blog archives on the difficulty of sustaining alpha returns…)

From the Turnkey Analyst Blog:

Summary Findings

Before I even begin, here are some findings (I use the CRSP return database which starts January 1, 1926 and runs through December 31, 2010):

  • Earning 20%+ returns over very long horizons is for all intent and purposes virtually IMPOSSIBLE(assuming the market experience of the past ~90 years is representative of the future).
  • 31.5%+ returns over the 1926 to 2010 period imply that an investor will end up owning over halfof the ENTIRE stock market.
  • 33%+ returns imply that an investor will end up owning the ENTIRE STOCK MARKET!
  • A 40% return will have you owning the entire stock market in ~60 years–not a bad retirement plan!
  • A “doable” 21.5% a year implies an investor will own .62241% of the market at the end of 2010. With a $16.4 trillion total market value as of December 31, 2010, this would imply a personal stock portfolio worth $102 billion!!!
  • Warren Buffett–and perhaps a very select handful of others–have been able to achieve 20%+ returns over very long time periods. These individuals represent some of the richest people on the planet because of this very phenomenon.
  • An investor might have an epic run of 20% returns for 5, 10, maybe even 15, or 20 years, but as an investor’s capital base grows exponentially, the capital base slowly becomes ALL capital, and all capital cannot outperform itself!


95% Cancer, 5% Alpha?

From the Financial Times:  “Assessing the performance of funds of hedge funds“, B. Dewaele, H.Pirotte, N. Tuchschmid and E. Wallerstein:

“Applying the FD procedure to the first model, we find that, after fees, the majority of FoHFs do not channel alpha from single-manager hedge funds. Applying the FD procedure to the second model, we find that only a very small fraction of FoHFs deliver after-fees alpha per se, i.e. on top of the alpha of the hedge fund indices. “

FOFs face a huge hurdle because of the high fees.  HF Indexes face a huge hurdle because of how they are structured.  If anyone ever tries to sell you something that is the “beta” of hedge funds, run away as fast as you can.  You don’t want exposure to hedge fund beta (it’s the alpha you want) nor do you want exposure to broad hedge fund indexes (although some replication can make sense, depending).  Lots and lots of articles in the archives and a nice post here from Bridgewater’s Daily Observations “Hedge Fund Returns Continue to be Dominated by Beta“.

Access to Hedge Funds


Another Type of Replicator 


Hedge Fund Indexes:  Who Needs ‘em? 

Demographics and Some Uncomfortable Truths

I read this article on the plane en route to London.  PIMCO has been hinting at their recent work in the demographics space and I hope we see more here…

Well That Was A Surprise…

I don’t pretend to have the same preferences as my audience, and that is why I often ask questions and poll the readership.  If you  remember back to 2008 I had a design contest for the book cover and let users pick the winner and eventual cover.  Much to my surprise, the cover I like received about 5% of the vote and the winner, well, is now the cover.

My last two polls asked a question about what content you want to see and where.  The vast majority of you want to read strategic and tactical investment content, and shocking to me, most of you want to read it online or as a PDF by a 2:1 margin.

Personally I can’t think of anything worse than trying to read a 200 or 300 page piece online or as a PDF but that is why I asked.  Then again, my iPad and Kindle are both mostly used as paperweights and only for long trips.  Kindle and hardcover were both represented with much lower votes.  I’ll post a chart after a few days when all of the votes are counted.

I could see the content possibly coming out in one of all of the formats but will have to marinate on it a bit more.

Link to survey here if you have not voted…

(Below is the cover I liked most!  Awful in retrospect….)








New Book

After viewing the responses to our last survey, we have decided to update a few of our white papers and expand upon them.  The biggest question I have is, “How do you want to read long form content?”.  Since this update will likely be somewhere between 50-300 pages, I would like to poll the readership as to your preferred viewing method.  Vote below, as it will have a material impact on how we deliver the content come January…

I will probably wait until year end to include 2011 data, but I envision:


-To A Quantitative Approach To Tactical Asset Allocation and Relative Strength Strategies for Investing.

-Include 2009-2011 data.

-Include more data on long/short portfolios.

-Include more data on combining the two portfolios (ie a momentum rotation with timing component).


All new material:

-Additionally include many more asset classes than the original five such as currencies, small cap stocks, emerging market stocks, foreign bonds, corporate bonds, gold, etc.

-Include alternative indexing strategies.

-Include various allocations, ie more and less aggressive (40-80% in bonds), risk parity etc.

-Include popular guru allocations such as permanent portfolio, endowment, Arnott, etc.

-Include alternative cash management strategies.

-Possibly include chapters on fundamental factors.


This is your chance to pipe up about what you would like to see included…so vote below and/or email me suggestions.  If you want to see the material available on more than one device/location vote for more than one choice…


Emerging Market Models

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