The 2+2 Hedge Fund

[laserboy]

[ QUOTE ]
"One last thing. You cannot beat the market Mr. Sklansky. You cannot beat the Wall Street mediocrity. If you really could, you would do it."

I won't comment on that anymore. But I would like to bring up again your statement that the mutual fund managers who are only average because they have to pick 30 stocks would beat the averages easily if they could pick their best five. If you changed the numbers to 100 and 2 you could conceivably be right. But any smart person realizes that what you said almost can't be.

[/ QUOTE ]

Actually it makes perfect sense. It is far easier to come up with 5 good investing ideas than it is to come up with 30. "Sure thing" investing ideas are few and far between. It stands to reason that the more stocks you are forced to invest in, the less concentrated your portfolio is in these "sure things" and the less impressive your results will be.

Like Buffett says... better to put your eggs in one closely watched basket...

[laserboy]

Warren Buffett wasn't always a billionaire. He started out with $200K and pumped it up to $40 billion. There is no one else in the world can approach that kind of track record. No one.

And for what it's worth, Warren Buffett does happen to know a thing or two about short term trading and financial derivatives. He made an absolute killing a couple years back with zero coupon bonds. His mentor, Benjamin Graham, practically invented the art of arbitrage. He concentrates primarily on long term buy-and-hold value investing because, dull as it seems, that has always been the most efficient way to make money on a time/risk/reward basis.

[Dan Mezick]

OK, this thread has gotten **really** interesting. Jeff Yass is making offers to David Sklansky?

For those who do not know of Jeff Yass, he is one of the most famous quantitative market traders in the world. As in, world-historical. His firm trades for it's own account and has over 500 employees, hundreds of whom are full-time traders.

You gotta love it! Here's a link:
Jeff Yass Backgrounder

David, might you consider sharing with us your relationship (if any) with quantitative analysis of securities and markets?

It seems obvious now that you have had huge opportunities in markets and finance at several points along your career path, and explicitly decided against these, choosing poker/publishing instead.

Can you volunteer just a little more background on these decisions? I can't be the only curious fan. Maybe you are simply not a morning-person and prefer to sleep in? Etc.

As a postscript, I find it very interesting that several guys who claim to be heavily involved in trading markets have chosen to semi-attack Sklansky on this thread.

I say semi-attack because they do so anonymously, behind an alias, and therefore without accountability.

It appears David completely welcomes (and may in fact deliberately encourage) such hazing.

[DesertCat]

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

[/ QUOTE ]

This post is best read while "America the Beautiful" is playing in the background. It is entitled, "what I believe".

I don't believe that price prediction trading can ever be successful in the long term. Now, I said "I believe", not "it's been proven" to recognize I may be wrong here. But what I do believe in is value investing and that all successful types of investing are offshoots of it's central premise, i.e. buying and selling when value diverges from price.

For example, I obviously believe in value investing as a strict methodology. I also believe in (some) managers who pursue growth stocks, because if they're good, they are buying equities whose future growth is not fully reflected in the current stock price. Bill Miller is a great example.

I believe in arbitrage, in buying and selling the same thing on different exchanges when it's priced differently. I believe in merger arbitrage. I believe in options trading, when options are mispriced based on reasonable expections for the stocks future volatility.

But I don't believe in day trading, or charting, or momentum investing. I don't believe anyone can consistantly predict price movements accurately enough to make money off of them.

And I believe that Jeff Yass is really a closet value investor, and not a trader at all. I believe this because I think he makes money in options arbitraging value and price. I.e. I think he finds positions where they are priced on past volatility, when future volatility is certain to be either much less or much more.

Now if I'm wrong, I don't mind hearing about it. If there is a trader with a great long term record who relies mainly on charts and predicting price movements, well, I always want to learn more about what is possible investing. But my experience is that most of those guys have a great 5 or 10 year run, then either blow up or retire just before they would have blown up.

[David Sklansky]

I believe in arbitrage, in buying and selling the same thing on different exchanges when it's priced differently. I believe in merger arbitrage. I believe in options trading, when options are mispriced based on reasonable expections for the stocks future volatility.

"But I don't believe in day trading, or charting, or momentum investing. I don't believe anyone can consistantly predict price movements accurately enough to make money off of them.

And I believe that Jeff Yass is really a closet value investor, and not a trader at all. I believe this because I think he makes money in options arbitraging value and price."

It is my understanding that for the most part you are right. Except maybe for market inefficiency right after significant mews. If you think I implied otherwise, I apologize.

[BarronVangorToth]

[ QUOTE ]


I say semi-attack because they do so anonymously, behind an alias, and therefore without accountability.



[/ QUOTE ]


What else is the internet for than to make fun of people without them knowing who you are so that if you ever step over the line you can simply come back the next day as New Guy X and start afresh!

I've long since thought "handles" are absolutely ridiculous, especially when I've seen exchanges between people who meet "in real life" from various chat boards (we have this all of the time with my WWE game) and everyone, say, at a convention has their name on their badge and everyone is trying to figure out that John Smith is 420-4Life, etc etc.

It's so much easier to lack accountability.

As far as the topic at hand, ANYONE who doubts that Jeff Yass is anything short of The Real Deal knows not what they are speaking about.

Barron Vangor Toth
www.BarronVangorToth.com

[DesertCat]

[ QUOTE ]
It is my understanding that for the most part you are right. Except maybe for market inefficiency right after significant mews. If you think I implied otherwise, I apologize.

[/ QUOTE ]

You apologize to me? What for? Investing is my bag man, just like poker is yours, but you are certainly much more accomplished in poker than I am in investing. I just have very strong opinions, most of which I hope are right, but certainly some of which may not be.

As far as market inefficiences around significant news, I think there may be something to that, esp. for options. If you can find a situation where a stock's volatility is due for a large change, anyone using historial volatility to value it's options will be way off.

A similar method I've heard of is spin-offs, where the composition of the shareholder base changes rapidly, and can lead to some predictable changes in volatility.

[DesertCat]

One more thing, David. You are surely the Warren Buffett of Poker, just as Warren Buffett is the David Sklansky of Investing...

[Redsox]

Dan,

I don't know what David's relationship is with Jeff Yass, but here is what I do know. I work on the floor with many susquehanna traders, and I'm pretty familiar with their training methods. Most of their early months as trainees at SIG include many many hours at the poker table (I think they mostly play 7-stud, but they also play some NLH). I also know that susquehanna runs several big NLH tourneys a year with the winner getting a paid trip to the WSOP main event. (the average susquehanna trader is a hell of a poker player) I also know that Sklansky's books are more or less required reading for trader trainees, and I've heard that Jeff Yass is evidently a world class poker player (as well as wealthy beyond all of our wildest dreams). I was the one who'd heard that David had been offered a job by Yass. I work on the Philly floor (Susq is headquartered out in Bala Cynwyd, outside of Philly), and I'd heard it from a couple of guys on the floor that I play poker with and generally socialize with. So that's what I know. I think its not only credible, but very likely that Susquehanna is trying to hire Sklansky, considering the way that they train their traders. Much of options floor trading (in other words market making) has something in common with poker. (i.e. partial information game theory, memory, etc.)

Eric

[cwsiggy]

Market making is not very comparable to poker. It is a very lopsided game with the advantage of knowing your order flow and limit orders on your books. Raw position trading takes skill but any monkey can trade order flow.