what should i be doing with surplus bankroll?

[Fishhead24]

SILVER, IOWA FARMLAND, and WALMART will be three things immediately to take a look at.


Also, foreclosures in many large cities will make many instant relatively easy money.

[Jeff W]

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thinking about the future of a volatility # takes into account kurtosis for passive portfolios.

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Hmmm, by volatility, you don't mean variance, right(are you just using it as a general term about risk)? It's been 5 years since I took mathematical statistics, but I think that you can have two distributions with the same variance and different kurtosis.

[Mr. Now]

Barron,

You are clearly very knowledgeable. Mr. Now gets your point about Mr. Sharpe's ratio relative to all of MPT. How about 200 or 300 words regarding your take on Mr. Sortino's ratio?

[DcifrThs]

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[ QUOTE ]

thinking about the future of a volatility # takes into account kurtosis for passive portfolios.

[/ QUOTE ]

Hmmm, by volatility, you don't mean variance, right(are you just using it as a general term about risk)? It's been 5 years since I took mathematical statistics, but I think that you can have two distributions with the same variance and different kurtosis.

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variance = volatility^2 so i use them interchangably. taking the sqaure root of the 2nd moment of a distribution doesn't change the distribution itself (and thus volatility and variance can be used interchangeably when talking about kurtosis. if a variance has a large kurtosis, the volatility has the same). thus i use volatility since that is kind of standard speak. at least if i remember MY older stat/math classes, lol.

but i think you're getting too far "in the weeds" here. what is the effect of kurtosis risk? it increases your unknown losses by a massive amount becausewhen you plug in a # that you assume is volatility, and assume that it falls within the normal distribution, you then become dependent upon that assumption. but you try to then take into account however you can by altering the #s to reflect the actual risk.

in some instances, the actual risk (like with equity tranches of CDO/CLOs) hasn't been witnessed AND can be huge. that is serious kurtosis risk and isn't at all reflected in the volatility figures (historical or otherwise) if you just try to plug in a #.

for the purposes of portfolio creation though, you can do a few things (or combine them) to try to capture this risk:

1) assign much bigger volatility # to it
2) assign a higher correlation # to it
3) assign wider ranges around the volatility
4) assign wider ranges around the correlation
5) use different distribtutions in the monte carlo iterations.
6) GO OUTSIDE THE MODEL and make an executive decision that the #s, no matter what you do, will never capture a risk you can't see...thus leading you to reject investment for the thing in question.

for general purposes though, we do make this mistake all the time when we compare, say the volatility of equities with the volatility of TIPS. that # doesn't actually take into account the kurtosis, and thus the distributions, of those securities. if we wanted to try to capture this KNOWN difference (equities have larger tails than TIPS), we can alter the #s via the methods above to try to draw a more applicable comparison.

i hope this answers kinda what you're getting at. you still haven't answered any of the questions i asked you though!!! so before you ask me another one, please answer what you'd rather use if not the sharpe ratio to compare attractiveness of an investment?

thanks,
Barron

[DcifrThs]

[ QUOTE ]
Barron,

You are clearly very knowledgeable. Mr. Now gets your point about Mr. Sharpe's ratio relative to all of MPT. How about 200 or 300 words regarding your take on Mr. Sortino's ratio?

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i haven't studied downside risk and the sortino ratio as much so i can't intelligently comment at the same level of detail.

it is sufficient for me though, that my former employer, who has spent a lot of time thinking about portfolio construction, chooses to use the sharpe ratio vs. sortino ratio when going through said construction.

that isn't an argument for anybody else though and you can draw your own conclusions, but typically, downside risk does NOT equal 1/2 volatility.

Barron

[Fishhead24]

Dcifr- Where do you think the DJIA will stand come JANUARY 1st?

Throw me a number

[maxtower]

Mr. Now,

I think it is important to separate a poker bankroll from other investments. For the pro, poker should be seen as operating a business. This particular business requires a substantial liquid cash reserve. If it is convenient, a significant portion of this reserve could be placed in a high yield account that preserves principal, like one of those internet savings accounts. These funds shouldn't be invested in anything with a fluctuating principal because poker has variance and the stock market (or whatever) has variance. Combining the two will produce extra variance. You wouldn't want to realize one day that you lost 6 buyins playing cards, while the stock market went down 10%. You would have to reload and be forced "sell low" your investments. I imagine most NL cash game pros keep between 20-50 buyins available for their limit, and are able to drop down if things get ugly.

Aside from having your bankroll in a savings account, another account should have 6 months of barebones living expenses. I think this is a good idea for anyone who isn't independently wealthy. You never know when the fish will leave or you'll lose a job.


This business will provide an income. Everything left over after living expenses can be invested as savings. Depending on your time horizon, different investments are better options. For retirement, you'll want to pick up a lot of the best long term EV stocks, etc. For shorter term, like saving for a house purchase or new car, these funds may find themselves sitting in the same bank account as the bankroll and emergency fund.

As far as MPT, I don't think it really applies here for the pro poker player. If you were trying to use poker as a high risk/high reward component of a portfolio, as your portfolio grew, you would be forced to play higher stakes to maintain the same portfolio percentages. This may not be possible due to skill limitations of the individual player.

For a small stakes part time (for fun) player who also doesn't have a lot of money, one could take this view. Depending on how well he did, he could move up and down stakes as liquid bankroll dictated. The extra cash generated could be spread to other investments. This would of course only last as long as the other investments didn't grow to a point that forced the player to move to stakes too high for their skill in order to preserve the portfolio ratios.

[DcifrThs]

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Dcifr- Where do you think the DJIA will stand come JANUARY 1st?

Throw me a number

[/ QUOTE ]

12403.28
14503.75
98.6

pick one.

Barron

[Fishhead24]

[ QUOTE ]
[ QUOTE ]
Dcifr- Where do you think the DJIA will stand come JANUARY 1st?

Throw me a number

[/ QUOTE ]

12403.28
14503.75
98.6

pick one.

Barron

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My heart is with 12403. [img]/images/graemlins/smile.gif[/img]

Probably finish someplace in between your numbers.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Dcifr- Where do you think the DJIA will stand come JANUARY 1st?

Throw me a number

[/ QUOTE ]

12403.28
14503.75
98.6

pick one.

Barron

[/ QUOTE ]

My heart is with 12403. [img]/images/graemlins/smile.gif[/img]

Probably finish someplace in between your numbers.

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thing about the dow for purposes of investment though, less fat tail risk than with farmland and highly liquid.

given everything i've read so far, the returns of iowa farmland do indeed look promising. i've read very little about people taking stabs at the risk involved. that makes me nervous as it should any investor.

if you have some $ you are very willing to part with for a presumably long period of time then perhaps the farmland is for you.

but you going around and saying bar none that it is the best thing to be in is fairly silly.

Barron