Things I did routinely at a hedge fund I’d never do with my own money. A thread 👇

1/ Run at 4x leverage or higher. Seems self explanatory but this is common. My current leverage is 2x. I’m up mid teens so far this year so plenty of Vol.
2/ Own 1 stock and short 1 stock in the same industry. This is long/short bread and butter but you can use much lower leverage if you avoid this. If you are truly neutral an industry, why even trade it to begin with? Now I buy in industries I like and short in ones I don’t like
3/ Short stocks with market caps below $50b. Takeout risk is real, and can ruin your equity curve. You’ve got a $15m position with 80% takeout premium (yes, this happens) - you’re near your drawdown on a $250m book . Onto the next one
4/ Not lend out highly shorted stocks. This is a complex topic - some shops do this poorly. Others do it well, others pay the lending fees to GPs. In real life you have to sweep heavily borrowed stock to cash account to lend out. Can add big returns. ETFs often rake you here
5/ Avoid credit / forex. What do SEKJPY and the HY/IG Cdx spread have in common? They move with stocks, use balance sheet effectively, and won’t announce they’re making an electric vehicle overnight. Shorting stocks is only sometimes the right short beta trade
6/ Outsource my execution. Philosophical and practical point - if you don’t know what moves your stocks you don’t truly know them. Why would you trust your execution to someone who doesn’t? Why trade without intraday edge ? It’s a huge part of investing
7/ Pay the street. I get LPs love management access and sell side relationships. But I’d rather run a process that can churn faster based on press releases or based on big peer moves. The tcosts to pay the street make you less nimble and actually lose you $.
8/ only trade stocks where I’ve built a fundamental model or previewed earnings. I’m happy to trade a stock I don’t know but it obviously needs a lower risk limit. This can be quantified instead of put in a binary rule. I often have 350 positions and only know 50 well
9/ run factor neutral. I think having an explicit view on the direction of value, momentum, growth, carry etc is a great way to add unlevered returns whereas “neutralizing” these factors more often than not adds other tails by virtue of everyone doing the same thing
10/ target 12x churn but own 10% of a stock’s daily volume. Adding arbitrary portfolio churn parameters incentivizes moving risk into illiquidity. $300m with 300x annual churn is totally fine if you’re trading AAPL and TSLA. W my own $ I only target market impact
11/ Yes I miss the fancy salmon lox spreads at nice hotels. The economics and scale of big funds are humbling. But I’ve chosen to take the road less traveled and build my own style because in the end - I don’t want to wear boxing gloves to the knife fight that is trading

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More from @goodalexander

20 Feb
Did you know ARK Invest website traffic is up 24x year on year? In this thread I'll explore some trading stats. Brokerages. Alexa Web View Growth Rates:
TD Ameritrade: 711%
Robinhood: 427%
I-Brokers: 300%
Fidelity: 227%
E-Trade: 140%
Schwab: 121%
All: 224%
Thread 👇
1/ Select Asset managers web growth:
ARK Invest: 24,700%
S&P Global: 265%
Moody's: 200%
IShares/Blackrock: 112%
Vanguard: 71%
MSCI: -35%
Total: 90%
Yes, I know this is not comprehensive - but clear there's rising engagement in index investing as well.
2/ Select store of value web interest growth:
Binance: 1000%
JM Bullion: 313%
Ripple: 241%
Apmex: 240%
Ethereum: 212%
Coinbase: 205%
US Mint: 200%
Bitcoin: 100%
Treasury Direct: -23% (oh nooo)
Total: +714%
Read 10 tweets
19 Feb
In 2012, I was tasked with using a large scale transaction database to find the forward leading behavior that would have predicted the 2008 crash and cohort level economic declines. The answer? "credit checks". This is key to understanding the bull case for stocks. Thread 👇
1/ Analyzing transaction data for real time spend isn't useful because it gives you no time to prepare. The question was - what pulls back first *before* people stop spending? It turns out people get their credit checked before making big financial decisions (house, car etc)
2/ Not only is this true at a micro level - it's true at a macro level. Aggregating demand for non-recurring credit checks (Merchant Category Code 7321 for the rogue analysts out there) gives you a picture of expanding supply and demand side credit, which predicts the S&P 500.
Read 9 tweets
16 Feb
Principles of rigorous backtesting. I'm at the point where I think backtesting has no positive edge - but failing to do it well can lose you a lot of money. See a lot of examples of absolute amateur hour backtesting on this site. A thread:
1/ Survivorship bias. How did signal perform on Lehman Brother's? DoubleClick? Delisted Natural Gas ETPs? What are assumptions around bankruptcy recovery or hold time post M&A announcement.
2/ Liquidity. What is rolling 21 day median volume of asset traded? What are assumptions of tcosts at different % of that volume in capital amounts? What are tcosts when providing liquidity vs taking liquidity? When taking liquidity simulate on historical order book
Read 13 tweets
13 Feb
So. I've been doing a bit of personal due diligence on Tilray. Which is not a good thing, because I'm connected to the internet. What follows is going to be an utterly self indulgent waste of your time that discusses SuperFrogs, Tokyo, and the meaning of Trading

A thread. 👇
1/ "Fyodor Dostoevsky, with unparalleled tenderness, depicted those who have been forsaken by God. He discovered the precious quality of human existence in the ghastly paradox whereby men who have invented God were forsaken by that very God." said the Frog…
2/ Much like the malaise Japan inflicted on itself in the early 1990s, portrayed in the SuperFrog Saves Tokyo (link above). We have inflicted upon ourselves a terrible burden: we work in misery perpetuating a system which justifies itself with happiness. This is the core problem.
Read 13 tweets
11 Feb
The past month I've been focusing on monetizing meme stocks through algo trading. It's gone well (now ~12.2% ytd with .1% drawdown). Macro has been playing out too though - however - and for the purpose of mental clarity, wanted to talk qualitative trades. A thread 👇
1/ First. Re: style. I subscribed to the Soros school, where I state my views in advance, track their outcomes and treat out of sample validation as 10x more important than back-fit narrative. My 2 pieces this year below:……
2/ Here's the PNL curve ytd on qualitative macro trading
Stats: +3.4% ytd (~1.2x leverage)
~10x Annual portfolio churn
Position #: 57
% UpDays: 69%
Avg Up Day: .28%
Avg Down Day: .21%
Max DD: .4%
(note the csv breakdowns that drive this are linked in the articles)
Read 12 tweets
9 Feb
@Long_Volatility @profplum99 So tweet 1 - 3 buckets. Non China: offshore potential currency destruction & wealth tax are largest drivers. China's aggressive action 2nd largest driver. Monetary "coercion" via negative rates and gold diversification 3rd largest driver (vs perception of being 1rst).
@Long_Volatility @profplum99 re: max value, that's not really how I think about it - it could obviously go higher than $10T it's simply like attaching a FCF multiple to a stock. Assuming there's $10T of 1 way flow over the next 5 years and semi fixed supply but discount due to tech / feasibility/ regulation
@Long_Volatility @profplum99 this helps me quickly decide how much BTC moves if Biden removes a wealth tax from the table, for example (about 15% drop). It's just an approximation to help me respond quickly to news / relevant catalysts
Read 5 tweets

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