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Entries for date "April 2017"

"Just Give Me a Seat at the Table and I'll Figure It Out"

Danny Moses has been a securities broker and trader. He was on FrontPoint Partners' team during and after the 2008 subprime mortgage/Lehman Brothers debacle. FrontPoint was a hedge fund that anticipated the subprime crisis and profited very handsomely from it.

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I am posting this link here because Moses is critical of the current state of the market, especially the stock market, which he describes as being disconnected from fundamentals— from the actual financial circumstances of companies. In particular, he says that the ETFs that own a stock matter more than the financial health of the company.

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Objectivity and the Trailing Performance Period

One of the most easily reached conclusions in all of logical thinking is that we should always do things the way that worked best in prior experience. Oh, that's not to say that we shouldn't or don't occasionally get inventive. But we surely believe that we should never do anything in a way that worked much worst in the past than something else that worked well.

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The mistake has to do with choices. I usually frame the issue by talking about "parameters". By that I mean numbers, numbers that specify your portfolio management scheme's way of learning from the past. The mistake is to simply find out what choice of parameters would have produced the very best results in the entire available history, to thus fix those parameters, and then to use them going forward.

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Use Relative Strength Sparingly?

There is a theory of investing out there that generally goes by one or the other of two names— "momentum" or "relative strength".

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But upon thinking relative strength through, we could worry a bit about the idea of focusing on owning only securities of particularly high momentum. What if the familiar commentaries about securities "getting ahead of themselves" or "overshooting" or "becoming overvalued" should fairly often prove to be applicable to our portfolio so that we would see our select few high-fliers reversing on us and returning to earth too often?

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