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#31
10-16-2007, 11:48 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
I really really dont think 50% returns are sustainable. Its like the 10pt/bb winrate. Sure some guys can run there for 40 to even 70k hands but put it over any decent sample and its basically impossible expect for honestly 5-6 guys in the world. The stock market cannot allow you to see the long run so this argument is pretty pointless. Its very possible DCs gains during the years were due to positive variance and his real EV was 25% gains. Im not saying it eas or wasnt, im just saying if poker has taught me anything its to not be so results oriented if the decision was an intelligent one. [/ QUOTE ] 50%, and better, is sustainable, to the point that your account gets too big to put all the money to work and your hunger to build your account wanes. However, if you build your account to a mill, you can still pull down a half-mill consistently even once your account grows to 2 or 3 million. And you really have to quit using poker terms like variance and EV when talking about the stock market. There is no such thing. In relation to poker, there are 52 cards and nothing governs what cards come out other than mathematical probability. There is NO such probability in the stock market, and you cannot have an expected value of a stock play. At the MOST, you can have a likelihood that a T/A play may or may not work based on past results. But even there, past results are one among many factors that decide whether the play works or not. It is never pure probability, as in poker. 
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#32
10-17-2007, 12:18 AM
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Re: 50% returns on small amounts?
[ QUOTE ]
Cocoa beans, not Coffee beans. [ QUOTE ] Some offbeat opportunities occasionally arise in the arbitrage field. I participated in one of these when I was 24 and working in New York for Graham-Newman Corp. Rockwood & Co., a Brooklyn based chocolate products company of limited profitability, had adopted LIFO inventory valuation in 1941 when cocoa was selling for 50 cents per pound. In 1954 a temporary shortage of cocoa caused the price to soar to over 60 cents. Consequently Rockwood wished to unload its valuable inventory - quickly, before the price dropped. But if the cocoa had simply been sold off, the company would have owed close to a 50% tax on the proceeds. The 1954 Tax Code came to the rescue. It contained an arcane provision that eliminated the tax otherwise due on LIFO profits if inventory was distributed to shareholders as part of a plan reducing the scope of a corporation’s business. Rockwood decided to terminate one of its businesses, the sale of cocoa butter, and said 13 million pounds of its cocoa bean inventory was attributable to that activity. Accordingly, the company offered to repurchase its stock in exchange for the cocoa beans it no longer needed, paying 80 pounds of beans for each share. For several weeks I busily bought shares, sold beans, and made periodic stops at Schroeder Trust to exchange stock certificates for warehouse receipts. The profits were good and my only expense was subway tokens. The architect of Rockwood’s restructuring was an unknown, but brilliant Chicagoan, Jay Pritzker, then 32. If you’re familiar with Jay’s subsequent record, you won’t be surprised to hear the action worked out rather well for Rockwood’s continuing shareholders also. From shortly before the tender until shortly after it, Rockwood stock appreciated from 15 to 100, even though the company was experiencing large operating losses. Sometimes there is more to stock valuation than price-earnings ratios. [/ QUOTE ] [/ QUOTE ] This is fascinating. Thanks for posting. tc
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#34
10-17-2007, 11:29 AM
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Re: 50% returns on small amounts?
If you could easily sustain 50% rates on small accounts you could grow $50,000 to $1million in just about 7 1/4 years and grow it $10,000,000 in about 13 years.
If you could do this why wouldnt you simply grow you're account to 1-2 million and then just live like a rockstar off the $500,000 -$1,000,000 youre bringing in every year?
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#35
10-17-2007, 12:10 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
[ QUOTE ] Buffetesque small/micro cap arb plays? Krishan [/ QUOTE ] Pretty much. I don't feel that moving up in limits is going to help my game  [/ QUOTE ] Do you tend to towards short term gains as part of the nature of the universe of stocks you are looking at? I think it's an interesting space and can see how structurally excess returns would be consistently possible. Krishan
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#36
10-17-2007, 12:42 PM
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Re: 50% returns on small amounts?
Pig4bill,
I still feel like I am correct in the sense that you can run well in the stockmarket and run poorly as well. Sure you may have a great investment idea but just like in poker there are many things you cant control so variance comes into play. Fpr example, that sector of the economy heats up, the government passes some new legislation ect. ect. There are many things that can happen that will make you look like a genius or an idiot but a smart person realizes he is somewhere in between
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#37
10-17-2007, 01:06 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
Pig4bill, I still feel like I am correct in the sense that you can run well in the stockmarket and run poorly as well. Sure you may have a great investment idea but just like in poker there are many things you cant control so variance comes into play. Fpr example, that sector of the economy heats up, the government passes some new legislation ect. ect. There are many things that can happen that will make you look like a genius or an idiot but a smart person realizes he is somewhere in between [/ QUOTE ] Long Term Capital Management was formed by the smartest people in the investment business including Nobel Peace prize winners. Initially they raked up returns approaching 40% per year using bond arbitrage strategies. The Russian Financial crisis led to a flight to quality and their arbitrage positions rather than converging, actually diverged. Exacerbated by heavy leverage huge losses ensued and the fund eventually failed. These guys were very smart until the unforeseen (variance) happened.
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#38
10-17-2007, 01:20 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
[ QUOTE ] Pig4bill, I still feel like I am correct in the sense that you can run well in the stockmarket and run poorly as well. Sure you may have a great investment idea but just like in poker there are many things you cant control so variance comes into play. Fpr example, that sector of the economy heats up, the government passes some new legislation ect. ect. There are many things that can happen that will make you look like a genius or an idiot but a smart person realizes he is somewhere in between [/ QUOTE ] Long Term Capital Management was formed by the smartest people in the investment business including Nobel Peace prize winners. Initially they raked up returns approaching 40% per year using bond arbitrage strategies. The Russian Financial crisis led to a flight to quality and their arbitrage positions rather than converging, actually diverged. Exacerbated by heavy leverage huge losses ensued and the fund eventually failed. These guys were very smart until the unforeseen (variance) happened. [/ QUOTE ] they were always smart (pre variance) and are still smart (post variance). there is a big difference between being smart and being a great trader or portfolio manager. 1) they were farrrr to highly leveraged and used mostly historical correlations/volatilities as estimates of future corr/vol #s. 2) they had the same bet going on in thousands of different ways 3) they ventured into equity merger arb when they had no real expertise there and just applied the same arb model to it (but ehre there is no liquidity and moving out of it really moves the position) 4) they didn't have mutually beneficial relationships with prime brokers (their way or the highway) and they engaged in the same strategy with all their prime brokers (low cost, tons of leverage or we go someplace else). intelligence and market knowledge only go so far. you have to transform that knowledge into trade ideas and manage them expertly. blowing up doesn't make you any less or more smart...it does make you more wise. Barron
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#39
10-17-2007, 01:33 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] Pig4bill, I still feel like I am correct in the sense that you can run well in the stockmarket and run poorly as well. Sure you may have a great investment idea but just like in poker there are many things you cant control so variance comes into play. Fpr example, that sector of the economy heats up, the government passes some new legislation ect. ect. There are many things that can happen that will make you look like a genius or an idiot but a smart person realizes he is somewhere in between [/ QUOTE ] Long Term Capital Management was formed by the smartest people in the investment business including Nobel Peace prize winners. Initially they raked up returns approaching 40% per year using bond arbitrage strategies. The Russian Financial crisis led to a flight to quality and their arbitrage positions rather than converging, actually diverged. Exacerbated by heavy leverage huge losses ensued and the fund eventually failed. These guys were very smart until the unforeseen (variance) happened. [/ QUOTE ] they were always smart (pre variance) and are still smart (post variance). there is a big difference between being smart and being a great trader or portfolio manager. 1) they were farrrr to highly leveraged and used mostly historical correlations/volatilities as estimates of future corr/vol #s. 2) they had the same bet going on in thousands of different ways 3) they ventured into equity merger arb when they had no real expertise there and just applied the same arb model to it (but ehre there is no liquidity and moving out of it really moves the position) 4) they didn't have mutually beneficial relationships with prime brokers (their way or the highway) and they engaged in the same strategy with all their prime brokers (low cost, tons of leverage or we go someplace else). intelligence and market knowledge only go so far. you have to transform that knowledge into trade ideas and manage them expertly. blowing up doesn't make you any less or more smart...it does make you more wise. Barron [/ QUOTE ] These guys are brilliant still, I am sorry if I left the wrong impression. Even though they were brilliant they took risks that they did not fully undrstand and if that is the case what chance do mere mortals have of fully understanding risk? There is a risk reward trade off in investing. If you are getting a return greater than risk free Treasury bills you are taking risk no matter how smart you are.
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#40
10-17-2007, 01:37 PM
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Re: 50% returns on small amounts?
[ QUOTE ]
If you could easily sustain 50% rates on small accounts you could grow $50,000 to $1million in just about 7 1/4 years and grow it $10,000,000 in about 13 years. If you could do this why wouldnt you simply grow you're account to 1-2 million and then just live like a rockstar off the $500,000 -$1,000,000 youre bringing in every year? [/ QUOTE ] Remember to deduct overhead and living expenses from your annual returns. You might start part time but pretty quickly you'll want to do it full time. This slows your portfolio growth. And I have no answer to the second question. As my portfolio grew my returns diminished a bit, so while I live very well and enjoy not having a job Im no rockstar. If i worked harder and was more of a miser Id probably get to rockstar income levels but I enjoy playing poker every day and spending time with my family. I often wonder if I'd benefit from counseling cause I always feel like I could accomplish so much more with any serious level of dedication. I blame my wife really, she's far too satisfied with what I have accomplished, given she moved in with me when I was an $4 per hour bus boy.
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