A reminder that evaluating any performance requires comparing to a relevant control investment. That control should incorporate rebalancing and have the right vol scaling.

Some things you should wonder...
Does the manager have security selection edge, sizing edge, timing edge?

How do you test for these 3 edges...you need a sensible dummy benchmark.

Lots of room for details but you can listen to this pod to get your bearings


Do money vs time-weighted returns tell us anything about the scalability of the strategy?


(h/t @EconomPic)
Every time a no value add asset gatherer pays through the offer on a house in your hood, you lose a little bit.

Choose violence.

(I do think pro allocators do a much better job than retail on vetting so maybe this is better aimed at the retail doomsday grift)

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More from @KrisAbdelmessih

24 Sep
Friday musing before I hop off this app...

Is it inconsistent to be more compassionate to "horrible" people than to animals?

Animals that suffer seem to be a big monkey wrench in trying to hold together some worldviews.

A winding observation in the past week got me there...
I was at an exhibit in a museum in Danville that dealt with the opening of the US western frontier including the fate of native Americans.

It gets you thinking of course about how human cultures could evolve so differently.

But one of the ideas that I fixated on was...
The view to some tribes that owning land made no more sense than owning the air or water.

And the only thought that occurred (actually recurred, because I have it a lot) is how made up everything is. I mean rules and laws (not say physics...I mean we can build bridges and cars)
Read 9 tweets
24 Sep
2 games.

In one of them you roll a die and get paid whatever comes up. So if it comes up 4 you get $4.

What's that game worth to play?

Now consider a second game, where you ONLY get paid on a 6, but you get paid 21-1

What's that game worth?

News flash: VCs play game #2
Suppose there was a $10 strike call on both of these investments. What's it worth?

Ok I'll take 150 retweets, and a million likes now.
If someone managing money finds any of this "eye-opening" they are committing malpractice. This is what's known as a first round interview question for a 21 year old analyst role. There are no dumb questions, but if you have a seat and any of this is interesting I'm 🤯
Read 4 tweets
23 Sep
If your work makes you study companies and business models you build a deep pattern library to cross-reference a new idea against, adjusting for differences.

I totally lack this and it's a cool thing to have. Next best thing would be to lean on your friends who have it I guess
You can read and listen to pods to learn it maybe. You can even pick up some jargon that compresses some of the patterns (ie "melting ice cube"). But I wonder how far you can get without immersion of investing in companies.
When I hang out with friends (local dads) and shop talk comes up I'm always the one slowing it down "hold on what does that mean". A lot of it very credit/PE-sounding stuff, with more references to legal sounding stuff than I'm used to.
Read 7 tweets
16 Sep
Fwiw if the question was which accounts stretch or linger in me the most it's the more progressive/shitpost accounts.


Provocative but not progressive
And then there's accounts I just kinda love for being amusing/provacative in a positive way

@visakanv (who's spirit most resonates with me and I aspire to but I'm neither as smart or as kind as him)

My career has mostly been surrounded by Ayn Randian types but some of the absolute smartest people I've seen in this biz are very progressive and kind of black sheep and I've always been intrigued by genius idealogues.

On one hand you have what Munger says about them...
Read 4 tweets
14 Sep
What will a 95th percentile return for single stock be in the next 6 months be?

What if we restrict to optionable? Anyone have a dashboard that can ask:

"5% of names have an N(d2) of at least 3x"

but 3x is a threshold you can move until you capture 5% of the universe
Because it's optionable I think that sets a floor for what the true 95th percentile return will be since the investable universe for this contest is all stocks.

But I presume that at least half the kids won't realize that picking a recognizable name won't cut it....
Meaning the probability that any kid picks a name that finishes in the 95th percentile is probably small.

Using this to think about what range of implied odds to look for in a biotech. A name that has 5x potential is probably unnecessary to strive for but 2x prolly not enuff
Read 4 tweets
11 Sep
Not in the same league, but have a distant relative that owns a bunch of buildings in LA (he lives in a Santa Monica house that was worth $5mm 20 years ago).

When I asked him about anything related to business, he just says Jesus tells him what to buy.

The lesson...
Time machine to the 1970s and start buying everything in CA.

My family considered moving to CA in the late 79s early 80s when I was living in Brooklyn. I was 4 years old when they scouted the Bay Area.

Parents couldn't land a job there. We settled in NJ.
They bought a house for $70k. My mom remembers camping out bc you could get a early bird mortgage for 13% instead if 14% or something like that.

Anyway, that $70k house is only worth about $400k today. Throw 2% RE taxes and it has been an awful financial investment...
Read 5 tweets

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