ask Dcifrths...well, anything...about finance/mkts/ports that is.

[DcifrThs]

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Barron,

Where do you feel "knowledge accumulation" is more efficient - entry level at hedge fund or reading everything you can get your hands on at home + occasionally seeking out smart people to discuss / learn? I ask this b.c. I am beginning to see a parallel with the entry level job as a more advanced+focused extension of college, which is a highly inferior learning mechanism b.c. there are too many stupid demands and distractions for optimal learning(i.e. GPA, people who love to contagiously waste time, and classes on English literature).

Assume you have financial flexibility from poker that the pay from any job is irrelevant, as well as enough $$$ to start a small personal fund when the "knowledge accumulation" has hit a desired level -- and then make back any losses through poker. The stop would be pretty tight the first time [img]/images/graemlins/wink.gif[/img]

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without my former employer's training, i would be light years from where i am today. my love of this stuff wouldn't be where it is and i can't thank them enough. i wish everybody could get the training i got. i am still unbelievably far from where i want to be but this first step has helped a ton.

i would recommend an entry level analyst job wherever you could get one. hedge fund, research shop, bank etc.

steer clear of investment banks that will peg you in a hole and that will be your label for life (this is hearsay from friends in IBDs of bulge brackets and boutique banks).

i vote for job!!! training is invaluable. i could never have gotten this far on my own. the next steps i feel like i can get to as a result of the base i have, but i still need more training and want to get it on my next job.

also, you should be reading everything you can get your hands on anyways. it all links together and is all important. ECONOMIST ECONOMIST ECONOMIST. that magazine is so underpriced it is sick. i want to lock in that rate for the next lifetime.

Barron

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Economist is very much on target, I agree. Once a week + online is not enough for me - luckily there are decades of back issues which I would argue are even more valuable than current ones if your goal is learning as opposed to currently managing money.

Another question: What are some specific things you learned in the training that make you value it so strongly? How does it relate in terms of strength to an analogy of learning poker with or without 2+2 and/or the help an already accomplished player?

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things in training were just how to think about financial instruments.

how to evaluate risk premia, expected returns, st.dev, correlations and the like.

final exam questions were like what are the expected MONTHLY correlations of things like "US eurodollar futures & japanese euroyen futures, world stocks & world bonds, nominal bonds & IL bonds"? and what happens if you look at those over rolling longer time periods?

also, valuation of securities overall. how to construct and value different cash flows (even w/ my MBA in mathematical finance i had trouble with this section of the class).

option pricing with discrete dividends etc.

just overall the most solid training i could imagine. i can only hope to do it justice and be ever building on it

Barron

[KDuff]

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If you thought you were the best (pure/skilled/technological/whatever) trader in the world with $10B AUM, but could only trade in one market, what would you trade?

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obviously the market im the best at trading. no "best in the world" trader is best at all markets.

Barron

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Allow me to rephrase: please name the market in which you think you could develop the biggest edge.

[Sniper]

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i'd want to rebalance that monthly.

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Just for clarification, Barron, you consider monthly rebalancing to be passive?

[DcifrThs]

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i'd want to rebalance that monthly.

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Just for clarification, Barron, you consider monthly rebalancing to be passive?

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i do not...but i think it is necessary enough to "mix alpha and beta" in this one instance.

obviously it is a conscious choice that impacts returns so in the simplest sense, it is not a passive, but an active decision.

however, by weighing the consequence of not rebalancing at some interval, or within some range, i think a strong case is clearly in favor of rebalancing.

given the importance of it with respsect to your portfolio, i think some decision about it must be made (i.e you must rebalance vs. not rebalance at all).

given that, at what interval? in what manner? how much transactino cost witll you entail? what will the impact on the portfolio be?

these are all good questions and given some literature i've read on the subject and what i've seen (albeit a small sample, but a good sample...as in a solid sample of funds i would trust), monthly rebalancing seems to be a good option.

if i can flip the question, what would you recommend??

no rebalancing? or a different method (range rebalancing)?

good catch though b/c that is a distinction i failed to make explicit.

thanks,
Barron

[DcifrThs]

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If you thought you were the best (pure/skilled/technological/whatever) trader in the world with $10B AUM, but could only trade in one market, what would you trade?

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obviously the market im the best at trading. no "best in the world" trader is best at all markets.

Barron

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Allow me to rephrase: please name the market in which you think you could develop the biggest edge.

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i guess it would have to be either IL Bonds or Currencies... depends.

with currencies, you have the largest # of non-profit seeking participants. and they act with large amounts of money...in many isntances for long periods of time. but when those non-profit seeking participants lose, they lose big.

with IL bonds, not many people truly understand these instruments and in some mkts, they are simply a necessary thing (UK) mandated by law basically. in other mkts, they are vastly underutilized, so there is some great potential for profit for an expert.

overall though i think i'd be a currency trader if i were the best in teh world.

Barron

[chisness]

Great response re: the economy status. I'm going to pick a few of those main ideas to look in to and will let you know if I have any follow up questions.

[ahnuld]

Barron, im multitabling and cant skim the whole thread, so just tell me if this has been asked and answered. In other threads you have mentioned how you firmly believe that the Chinese will be forced to devalue the yuan in the near future. Can you run the the scenario and mechanisms that you believe will force this change?

[scott1]

Interesting thread.

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i would create an equity heavy passive portfolio for the loonnnnggg term. it would probably come out to:

30% global equities (F*CKING HEDGED)
30% global developed aggregate bonds (also hedged, but for some reason asset managers always hedge bond allocations but not equities)
15% developing world bonds (hedged)
15% global inflation linked bonds (hedged)
5% commodities
5% global real estate (hedged)


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A long term portfolio with virtually no domestic positions?

Do you currently have a portfolio set up like this?

[DcifrThs]

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Barron, im multitabling and cant skim the whole thread, so just tell me if this has been asked and answered. In other threads you have mentioned how you firmly believe that the Chinese will be forced to devalue the yuan in the near future. Can you run the the scenario and mechanisms that you believe will force this change?

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UGH. i f*cked up. read the part below "EDIT" first and then read the part directly below. thanks


revalue. appreciate.

and sure. if their economy miraculously slows and inflation concerns subside.

specifically, if the global economy slows simultaneously and a decrease in demand for chinese exports relive the stress that ths huge current account surplus is causing right now.

another one might be a shock, like labor productivity falling off drastically due to some huge problem somewhere in the country. that might make their prices unfavorable enough on a global scale so that the demand for the goods falls off.

basically, the economy needs to slow to head off inflation. inflation needs to not be a worry and then the chinese can maintain their peg without a problem.

just to be clear though, the chinese CAN maintain this peg indefinitely. it's not like many other devaluations that have occurred (US off the gold standard & failure of bretton woods, latin american crises in the 80s, UK in '92, argentina in i think it was '02, thailand and subsequently malaysia & others in the asian crisis in '98). in all those cases, the countries tried to prop up their currency by selling foreign currency reserves & purchasing their currency.

but in order to do that, you have to have foreign currency reserves (or in the US's case in 1971, gold). when you run out, you're done. interest rates then spike etc. etc. as the country has to make a choice between domestic affairs or the peg (typically, the country is entering a recession at the same time as rates rise to attract foreign capital to maintain the peg. this is horrible for domestic economy & eventually the devaluation comes and it is a relief).

china has a similar choice to make, but it can simply print renminbi all day long & sell them & buy US$ (and thus 10yrs). the only reason they don't want to do that is inflation. that increase in money supply is hugely inflationary and will cause domestic prices to rise sharply.

that rise in prices will cause the price of their goods internationally to rise as well. the point of the peg is to keep their goods competitive on the global stage.

once the demand for goods falls off, the CA stops growing at its current pace and the pressure to revalue backs off a bit (both from the US and from economic fundamentals)

like anything in finance, this isn't black and white, the unexpected can happen and the chinese may not need to revalue. but in every other case (where the shocking doesn't happen), the chinese economy needs to slow. interest rates must rise. in order to do that, the yuan must revalue.

hope this helps, as always, let me know if i've missed or confused something as i'm sure has happened and will happen.

EDIT: CRAP!!! i misread your questison. i thought you asked what would cause them to NOT have to revalue.

basically they do have to revalue and the mechanisms are touched on above. i thought you had that part clear and wanted to know the reverse case (as i firmly believe you should always think about so you can see the seeds of it earlier than others when a shock hits etc.)

the case as it is now goes like this:

china wants to run an export led economy. they want their exports to be the cheapest. they have cheap labor and their plan of keeping their goods the cheapest by holding their currency down vs. the dollar has worked wonders.

in fact, it has worked too well. growth has been double digits. since china had so much capacity to utilize before growth became inflationary, the economy COULD grow at that rate...until inflation became (and is) a problem.

inflation raises domestic prices. the rise in domestic prices will make their goods less attractive and thus defeats the point of the peg to keep their prices down. if they let it come to this, the shock will be painful and as history has shown in every single instance (there is not one case i have heard of where the opposite of this happens), a country will ALWAYS choose its citizens and its domestic affairs over its peg.

instead, the chinese economy needs to be slowed down. in order to do that, china has raised reserve requirements for banks, threatened capital gains tax increases (which helped spart the february sell off and 9% loss in shanghai), and done everything conceivable to slow it down and reign in the liquidity...except what it needs to do.

china needs to raise rates to slow the economy & head off inflation.

it cannot raise rates while it is pegged to the dollar. a peg, in effect, ties together the two country's monetary policies. so in order to raise rates, the yuan must be allowed to appreciate.

is this clear? or am i a jumbled meess here??

thanks,
Barron

[DcifrThs]

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Interesting thread.

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i would create an equity heavy passive portfolio for the loonnnnggg term. it would probably come out to:

30% global equities (F*CKING HEDGED)
30% global developed aggregate bonds (also hedged, but for some reason asset managers always hedge bond allocations but not equities)
15% developing world bonds (hedged)
15% global inflation linked bonds (hedged)
5% commodities
5% global real estate (hedged)


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A long term portfolio with virtually no domestic positions?

Do you currently have a portfolio set up like this?

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domestic exposures are encompased and are in fact the largest exposure in all "global" allocations.

in risk terms above, i bet domestic equities haveprobably a 10-15% weight.

domestic aggregate bonds have maybe a 8-12% weight. these are guesses but the point is that US equities are heavily weighted in a Global Equity allocation (that is not expressly "ex-US")

similarly, global aggreagate bonds give a large weight to the US.

ironcially, no i don't. a ton of my money right now is tied up in real estate and when i eventually sell and get cash i will set up this portfolio.

Barron