The 2+2 Hedge Fund

[DesertCat]

It's interesting that the link is to an article written by a trader trying to use Peter Lynch's name to support some ideas on trading. I'd be curious to read Peter Lynch's thoughts on this directly (but can't since I've misplaced his books), as to my knowledge he's never been a trader. His success has relied primarily on long term investments, and I would be surprised if he would speak positively of trading as an activity.

Trading overall is a negative EV activity, a less than a zero sum game. This is not only because for every winner there is a loser, but in addition transaction costs are a significant burden that sucks money out of the "game".

In contrast, equity investing is a positive EV activity, offering average annual returns of 9-10% or so over long periods in U.S. capital markets. If the way to beat the Roulette wheel is to not play it, then the most straightforward way to be a successful investor involves not trading.

[David Sklansky]

"While it is likely Wharton attracts much of the mediocrity of Penn, with the brightest of the school being attracted to the science or liberal arts departments, Penn is clearly one of the top schools in the country."

Wharton students might well be a bit dumber than Penn students in general. Or were. But Penn students are dumber than the students of at least nine schools, Harvard, Yale, Princeton, Columbia (then anyway), Stanford, Berkely, Rice, MIT, Cal Tech,and probably a few others such as Dartmouth, Chicago (then anyway), Claremont, etc. If they were ranked fourth by US News it was because of their academic facilities, not the intelligence of their students. Meanwhile Teaneck High did in fact have at least 20 students accepted by the other schools I mentioned.

[Bigdaddydvo]

Doesn't Wharton consistently rank #1 in US News' annual list of top B-schools? I believe the general pecking order is Wharton, Sloane (at MIT), Stanford, Harvard, and Columbia.

Incidentally one of my best friends just got into Harvard's B-school (found out this afternoon). Estimated cost of tuition and living expenses will be $65K per year. Definitely -EV short term, but hugely +EV down the road.

[slickpoppa]

DS, I had no idea you were a Bergen County guy. I grew up in Cresskill and went to Bergen Catholic.

[David Sklansky]

You are thinking of the grad school.

[Bigdaddydvo]

I thought that's what we were talking about...unless I missed something at some point on this thread.

[illiquid]

[ QUOTE ]
"And as for the credit he got for not buying internet stocks during the bubble, why didn't he short them?

[/ QUOTE ]

The problem: anyone who truly believed that the net stocks were just overvalued hype would have started placing their shorts around 1997-98, and got their collective clocks cleaned; they just became fuel for fanning the flames even higher. If you'd bet against them at a P/E of 80, what happens when it goes to 160? Or 320? Buffett didn't play that game because he was smart/wise/experienced enough to realize he didn't understand the parameters of how those stocks were rising, and even more importantly, that you could lose and lose big during a bubble even if you were dead right in the end.

It's curious how much emphasis you guys seem to be placing on intelligence when it comes to succeeding in the markets, given that many of the greatest poker players barely had a college degree to speak of. Now all of a sudden IQ's are supposed to correlate with trading success? Haven't you guys ever heard that "it's better to be lucky than smart" when it comes to trading? What it really means is: it's better to be humble enough to realize when you've gotten lucky, than to have the ego to actually believe you were "smarter" than the market.

In any case, it's a fine line between confidence and hubris in the markets, and it basically comes down to how determined you are to suffer through the punishment everyone takes the first year or so. Anyone who comes into the markets thinking "how hard can this be?", gets his head handed to him. Period. It's infallible. Because the worst teacher in the world is the market, and the worst student in the world is one's ego. Thinking that you already deserve to succeed will most likely be the biggest obstacle anyone faces.

[Redsox]

David,

Any truth to the rumor that Yass and SIG tried to hire you a couple of years ago, and you turned them down? I play a regular 7-stud and nlh game with many of their traders (I work for Salomon on the floor with many Susquehanna guys), and someone said that they thought Yass had tried to hire you.

And as for Yass returning 25%. There probably was a time where he did QUITE a bit better than that. But with multiple listing, NBBO, and many big firms like mine and Timber Hill quashing the bid ask spread and competing for volume, it is highly unlikely that he does that well anymore.

[David Sklansky]

true

[Dan Mezick]

Terms like "investor", "trader" etc are imprecise and have wide definitions that include a wide range of timeframes, styles etc.

For example, many types of investor/traders use a simple charting method to identify (and catch a large piece of) long-term price moves.

Other investor/traders use research methods that identify core value, growth potential etc. Then they purchase stock, and wait for everyone else to "get it", then go out and purchase the stock.

Still other investor/traders have other methods of identifying long-term core value, likely long-term price moves, etc.



All succussful investor/traders use a method that beats the rake.

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