| |For those who had a “safe” portfolio skewed to bonds before the election, it was a disaster month. For those who were stock-pickers in value and small cap, it was a dream market. The return differential between bonds (TLT) and value (IWN) was more than 20% in one month. Call it a “Trump Rally / Trump Bond Sell-off”, but the financial world changed beyond politics. This sound bite story may be getting old, but there is a lot going on in markets beyond being long stocks and short bonds … Read more The Big Bond Break and Equity Revival – November Performance
| |CTA Intelligence reported the top 50 CTA’s as of September 2016 and provided some good graphics on the names and the changes over the last year. Taking a closer look at the data from the perspective of market structure and industrial organization provides some additional insights on the managed futures industry. We will focus the discussion on the top 50 managers because these are the ones that will receive the most interest from institutional investors. We can call this the relevant market … Read more CTAs – What is going on with size?
| |“I made my fortune by selling too early”, a quote from Baron Rothschild used for an investment game by John Hussman. John Hussman has invented a game called “Baron Rothschild” as a teaching tool which is based on a simple process of drawing returns from a set of cards The sequence of cards can generate a performance record. Think of this as a form of Monet Carlo simulation from a return distribution. The player can call stop after any number of picks or he can continue to pull return cards to compound his performance … Read more Exits as Important as Entry Points? A Critical Issue
| |There are fads and fashions in finance and business. Some statistical techniques come and go in and out of favor based on expectations of success and the realization that some tools just cannot solve certain problems. Data mining in now a hot topic in many areas of business, yet there are not clear definitions of what data mining means, what tools it represents, and how it can solve problems. Clearly, the low cost of computing and storage has made the collection of data much easier, but the problem is not with the data. The issue is how you extract the data “ore”, how it is processed, and what you do with it once it is modeled … Read more Data Mining – More than Collecting Data Ore
| |You should expect that if a group of college-aged students in economics and finance and young financial professionals were given a fixed amount of money and told they can flip and bet on a biased coin with a 60% likelihood of heads they should be able to make money. Don’t bet on it. “Rational decision-making under uncertainty: Observed betting patterns on a biased coin” by Victor Haghani and Richard Dewey is one of those simple studies that really make you question the decision-making skills of even financial professionals. Just under 30% of the players in this game went bust and another 5% lost money. Just under 25% got it right in terms of using an optimal betting strategy that maxed wealth … Read more You Can Have Favorable Odds and Lose Money – Show Me the Sizing
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