We’ve taken a long journey together through the world of Geometric Balancing, traveling through some deep concepts together: We’ve learned about the geometric return and why it’s all that matters. We’ve acknowledged that the investing returns look mostly random. We’ve explored why rebalancing improves returns by moving them from the geometric to the higher arithmetic…
Category: Along the Curve.
Kelly Investing is About Slope
I left you hanging a few weeks ago, and it’s time to pick the thread back up. In my prior post I explained why factors of safeties are important in engineering and equated the factor of safety to using partial Kelly in investing. But I didn’t explain how to use partial Kelly. What I’m about…
Along the Curve.
A funny thing about the top of a curve: it’s flat. This flatness leads to an interesting investment question: are you willing to give up some return to reduce the bumpiness of the ride? The Flat Top When you look at the geometric frontier as a whole and not just the top point by itself,…
Factor of Safety
Surprisingly, designing a bridge or building has similarities to constructing an investment portfolio. We’re going to discuss some engineering concepts for a bit. Bear with me, because I will connect each and every one back to the investing world. Imagine you have to design a structural beam. To design this beam the engineer must understand…
Geometric Frontier
I fear I have gone past explaining a concept and need to take step back. Recently I used this chart which has the standard deviation on the x-axis (as opposed to the % of the asset in the portfolio). I want to explain where this chart comes from. To re-cap, the example uses two assets…
Error Drag: A Lesson in Strategy from Tiger Woods
If Tiger Woods was a investment manager, he would dominate investing just as he dominates golf. Golf is often called a game of misses. Even a professional doesn’t hit most shots to their target. Therefore they try to manage each shot so that the bad ones don’t ruin the round. 2019 Masters Re-watching Tiger Woods’…
If You’re Going To Miss, Aim Left
Engineering college classes teach students early on that all measurements are wrong. Essentially all measurements have some level of error. They are technically just estimates of the true value. Therefore you have to be careful using and extrapolating measurements during calculations. You may think you have precise numbers, but you probably don’t. Here is an example:…