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…
Category: New Perspective
Leverage Aversion
A part of classical portfolio theory has always bugged me. It treats levered strategies fundamentally the same as ones that don’t borrow. I think that inherently everyone knows they are very different. Before we dive in, think about this question: Modern Portfolio Theory Modern portfolio theory says the logical investment strategy is to invest at…
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’…
An Ode to Cooperation
I’m going to show you why giving money to other people may actually make you wealthier in the long run. Not richer in the spiritual or psychological sense, but truly wealthier in a monetary sense. In doing so the whole of society will be better off too. This concept might seem strange but many of…
Repetition Economics: The Story of the Hunter, the Mammoth, and The Wolves
Imagine you’re an early human. When out hunting for food you spot a woolly mammoth in a vulnerable position. Your family hasn’t eaten in days. Much of the tribe is desperate for food as well. Do you attack? The Mammoth. What would go through an early human’s mind to make this decision? Obviously, bringing down…
Geometric Shorts
Over the last month, very few assets have provided any return. Many strategies that weathered the downturn well included some type of short selling program. I don’t sell assets short, so I’ve leaned on other methods for survival. But if short selling helps a portfolio during bear markets, why don’t I short? Well simply put,…
Viral Uncertainty
It has been a strange month in the markets. Not only is the S&P 500 off to it’s fastest collapse from an all time high ever, other assets are collapsing as well. Stocks, bonds, and gold sold off the most they ever have in unison on March 11th, only to fall more on March 18th.…
To Infinity and Back
Out of the blue, my daughter says to me: “Infinity is when you keep counting forever.” That’s not something you hear every day from a 4 year old. We have been working on simple addition, so intrigued, I ask her: “What is infinity plus 1?” My daughter looked at me confused: “Daddy, counting to infinity…
What is the Expected Return?
Everyone agrees on the expected values at the extremes – it’s the middle that confuses people. For a single period, the expected value is the arithmetic average. Over a very long time (infinite), the expected value is the geometric average. But in-between the expected value becomes less obvious. Let’s shed some light on this problem.…
Randomness in Momentum Everywhere
Randomness explains much of the “Momentum Effect” in stocks. Yes, you read that correctly, much of the evidence for momentum can actually be explained through randomness. In part 2 of my evaluation of momentum, I’m going to show you how. Randomness (and Rebalancing) Hiding In Plain Sight In my post on when you eat matters…