Sluggish Market & Ant Theory

[charliechan]

Yes we do know better than them as their collective performance is woeful to say the least. Go and check the performance of funds over the last 10 yr; 5 yr; 3 yr; 1 yr or 6 month period and then draw your own conclusions.

Does the fact that they are managing multi billion Dollar funds make them good at what they do? No. It is the poor man/woman on the street that is paying the price for their mediocrity. They are the lumps that push airline shares up when oil is hitting new highs; the fools are paying 100 times trailing earnings and rating these stocks a strong hold. They are still touting the Euro as the new reserve currency when it is facing the prospect of becoming extinct.

yes i agree 100% with this.

dont forget though, that in fairness, managing x billion is a different ball game to the the average self directed trader/investor. i think i have read a comment of yours that acknowledges this somewhere else (?)

 

[chump]

they have an handicap ...besides size ...they are not working to a specific and individual plan tailored to exploit their specific abilities ..it's a third party policy approach...this I believe is why so many people who MOM perform significantly differently when they trade in their own right...
if you think about it it must be like trying to run the 100 meters wearing iron boots

 

[charliechan]

also, the private trader doesnt have the sec or fsa breathing down their necks and interfearing with strategy, enforcing you to diversify etc.

 

[RUDEBOY]

Ducatti, how can anybody argue the unarguable? That is your main form of defense, and may i say it, your main form of offense. What can FA show anybody that TA does not already allow for? Single stock, or what ever? Is there a dividing, is there something that ACTUALLY divides FA from TA? The point is, there is no arguement! FA and TA are inseprable, they are one! Trying to differentiate is impossible (efficient or otherwise). So your point, how ever much disguised, lies within the realms of FA and TA (inseprable), think about it? You can not allow your time frame to blind you to the cause! This would be a futile excercise to say the least. Please, don't argue against the shorter time frame for the sake of arguing. THE PRICE IS ALWAYS RELEVANT, to any time frame. In trading terms we are all relevent, no matter what the analysis is?

 

[chump]

LOL..evening rude ..nice weather up here this evening..
"is there something that ACTUALLY divides FA from TA? "....belief
nice night to be controvertial .."THE PRICE IS ALWAYS RELEVANT"..no.it's never relevant ..in fact that view guarantees you to lose..price is always the constant ...you the trader are the variable

 

[RUDEBOY]

LOL, Chump, you don't understand?


You really dont get IT!


You Tell Me Where Ta And Fa Separates?


Market wise, price wise? Who has seen it, who has not? Chump, does TA or FA give you a REAL edge? Does it?

TA or FA, its all the same! Use them to your needs?

Go on, chump, agree with ME!

 

[chump]

Rude,
I've been over this before and it's not really well understood so either I am a buffoon who can't explain my self clearly or the people listening don't wish to hear.so I don't see much benefit in trying give yet another war and peace explanation..I'll summarise and you think about it if your wish...
The trader is the variable ...the trader is the edge (or not as the case may be) ..the price is the constant ...fa ..ta..qa..et al are just the tools...
there you go

for the truly neuron challenged a simple example.
I give 10 identical shovels to 10 different people...I select a uniform peice of ground and peg off 10 sections of equal uniformity...each individual gets the same instruction ..dig as deep as you can within x mins...you will get 10 different results in depth dug...so what is the variable that created the difference in results (edge) ?
Applying this to the market you have your tools fa ,ta (shovels) etc ...you have your market (ground) to use the tools upon ..so again where is the edge ?

 

[RUDEBOY]

Sorry, Chump! I think i got a bit too excited last night (sunstroke). Sincerest, Rude.

 

[ducati998]

GammaJammer

3) Not being smart enough to realise that their supposedly almost risk free, well diversified arb plays were nothing of the sort. Rather, they were hugely correlated positions, which the firm was running in way too large a size for the markets in question.

Part of the problem was that they had moved from a statistical deviation quant theory in the Bond markets, into Risk Arbitrage, which is a very different kettle of fish, and into outright directional plays, both in Equities and Bonds...........all three were way out of their areas of expertise.

2) Not having sufficiently deep pockets for what is imho a pretty ballsy way to trade, even for a hedge fund.

Had they not had the massive leverage, they could have sat out the volatility, and survived, but of course their returns in actualised form would have been pathetic. Therefore the requirement for the leverage, and the seeds of danger.

So I guess what I'm trying to say in all this is that you can't just stick your head in the sand and say that you are right because ...xyz. Put simply, you will eventually get found out. Imho a good trader needs to pay at least some attention to all the information available, and have the strength to admit early enough when they're wrong, and move on.

And therein lies the ironic twist of the knife, they were right in their primary strategy, just couldn't ride out the storm due to the massive leverage. (their other strategies were well outside their models and experience, and they were stupid to take on the market without knowing what they were doing)

cheers d998

 

[SOCRATES]

Yes, it has to do with the highest levels of awareness and these are frequently disconnected from academic achievement, however brilliant.

This contradiction is infuriating to academics, who resent the repeated experience of being scraped by those they consider themselves to be above.

This breeds resentment which in itself is a corrosive posture. The trouble is that this cannot be corrected internally by the victims, on their own, since they are apt to persist with their own frame of reference, which is quite clearly the wrong one.

Of course this is very frustrating for them. You have to concede it is a frightful dilemma to have to face.

In this regard therefore the victims render themselves unhelpable.

They become victims of their greatest own achievement when their ability to confront realilties brutally laid before them, is disabled as a consequence.

 

[ducati998]

Gamma

Disgaree a little here. The problem wasn't their leverage per se. They were by no means alone of course amongst hedge funds in employing leverage. It was the fact that, having determined, and attained their desired optimum level of leverage with regard to the instruments the were trading, liquidity etc etc, they failed to reduce the absolute size of their positions when allowing clients to withdraw funds.

As soon as you employ leverage, you must be able to execute one of two alternatives.
1.......meet any margin calls
2.......exit the position

Their "excessive" leverage, & excessive position size, made both impossible, hence extinction.
But I agree, their greed, speeded their downfall.

Thus they effectively were silently over-leveraging. This was little to do with a requirement for above average returns,

Had they been utilizing solely their own & clients cash, their returns would have been pathetic as the spreads they were chasing were being measured in basis points therefore to make it profitable in $$ terms (not % returns) they needed the massive leverage.

Either way, I think LTCM represents a salutory tale relevant to almost all traders regardless of experience, account size or instrument traded.

amen

cheers d998