We experience the world through feelings. Through individual life experiences, we generate feelings and we can later access these feelings. We capture our feelings by finding the most fitting words. Words form sentences, and sentences form thoughts. Some thoughts are more “respected” than others and we call them intelligence.
Read More »
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 »
Today’s education system is largely a system that rewards students for following the “right answer” and punishes them for following the “wrong answer.” People spend their most formative years living in such a system and this system shapes these people into who they are. The best-performing students (at least, academically) are the ones who are best at remembering and following the “right answer” and best at not touching the “wrong answer.” This way of doing things becomes instinct. That’s how they succeed. That’s how they build up their own social identity. Whether they know it or not, it is part of them.
Read More »
I have written frequently on the topic that most active investment managers are unable to outperform the general stock market. To explain the collective underperformance of active managers, some answers have been found and discussed, such as the increasing level of efficiency on the market level (blame the market) or the increasing level of concentration to a few large stocks on the index level (blame the benchmark). In this article, I want to expand on this topic by laying out two factors that represent, on a more fundamental level, I think, the source of investment manager underperformance.
Read More »
Financial pundits like to make predictions like “when XYZ happens, the stock market will go up 80% of the time.” Those predictions are particularly common around the start of a new year, when people are eager to know how the year could possibly unfold for them. Seeing so many predictions, I become curious about their validity. So, I did some digging into the historical patterns of stock markets. The following is what I found.
Read More »
The Serenity Prayer:
God, give me grace to accept with serenity the things that cannot be changed,
Courage to change the things which should be changed,
and the Wisdom to distinguish the one from the other.
Looking back at 2023, I want to borrow the spirit of the Serenity Prayer and make a version of my own to summarize what I learned from the year:
Be tranquil and accept reality.
Be courageous and seek truth.
Have the fortitude to do both at the same time.
Studying human psychology, market history, and my own investment mistakes, I have increasingly come to believe that “Apparent Coherence” is a source of large investment mistakes. Stories that are so apparently coherent that they lead us to nod instinctively in agreement — that is often how large investment mistakes are born. It is not that coherent investment ideas are necessarily bad, but in fact, the logic goes the other way around. It appears to me that apparent coherence usually drives large investment mistakes. Below is a diagram I drew to illustrate what I mean.
Read More »
Jackson Zhu's Personal Blog 