In active investing, the word “edge” is often used. For about four years, I worked as an institutional allocator, meeting and studying investment managers, evaluating their strategies and capabilities. “What is your edge?” That is a popular question that allocators are trained to ask, and investment managers are trained to answer.
To this popular question, I have heard many popular answers:
Read More »
In recent days, probably from my learning to watch baseball games or from my reading of various books, I finally was able to crystallize into words some ideas that I long had about investing. These are qualitative ideas that are rooted in quantitative terms, such as “type I error,” “type II error,” “base rate,” and “hit rate.”
First, for the purpose of this article, let me define these terms:
Read More »
I observe myself and my investment activities and outcomes. I also observe other active investors and their investment activities and outcomes (this was actually my full-time job before). Something I noticed perplexes me: Despite almost all active investment managers being highly educated, well trained, and extraordinarily hardworking, almost all of them (at least in the U.S.) end up underperforming stock indexes.
For example, for the past 20 years, over 97% of “Large-Cap Growth Funds” in the U.S. underperformed the S&P 500 Growth Index; and the longer the measurement time window, the higher the percentage of underperformance (source: link). According to another source, losing funds’ underperformance is about 2x the size of winning funds’ outperformance (source: Figuring It Out, Ellis). To put it differently: Most investors end up underperforming, and when they underperform, they underperform by a wide margin. Clearly, investors’ hard work has largely failed to translate into good results. Why?
Read More »
The U.S. stock market, as represented by key indexes, has produced solid returns for investors over the long run. This fact has led many investors to conclude that 1) most stocks go up in the long run, and 2) buy-and-hold is a sure-fire strategy.
I would like to argue that, while the initial observation of strong index performance is correct, those secondary conclusions are misleading and have serious implications for successful investing.
Read More »
Many people were given answers before they had questions. By the time they have questions, it is too late!
We study history, not for the purpose of bringing back the past but building a brighter future. Growth mentality, not siege mentality.
Do not follow the herd. Seek tranquility, so you may gain transcendence. Quality has something to it that quantity does not. Find your groove.
Read More »
(Click the “Follow / Subscribe” button at the top to have future blog updates delivered into your inbox.)
It is a difficult decision for me, but I have determined that now is the time to leave my current position and to pursue a similar but not so similar path, something that is more true to my heart.
Reflecting upon the past four years, I distilled my key learnings into the following.
Read More »
On April 19, 2020, I became convinced that over the next two days, prices of crude oil would drop below $0. The next day, April 20, oil opened at $17.73 a barrel and closed the day at negative -$37.63 a barrel.
To help us appreciate the magnitude of that epic collapse, the oil price chart below showing the past 25 years would be helpful. See that big plunge?
Read More »
Jackson Zhu's Personal Blog 