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2018 Bentley Continental

Wall Street’s Best-Kept Secret

On East 83rd Street there’s a squat brick walk-up that’s a viable contender for the least fancy apartment building on Manhattan’s Upper East Side. But for the past 25 years, Wall Street machers and captains of industry have marched up to its gray-carpeted third floor to learn the secrets of attack and defense from Lev Alburt, a three-time U.S. chess champion and one of the most prominent Soviet defectors of the 1970s. Alburt has long been giving ­patter-filled private lessons to New Yorkers from all walks of life, encouraging, cajoling, and reprimanding men and women as they attempt to learn the so-called game of kings. 

Wall Street has a fairly well-trodden history with games: During off-hours and downtime, games of chance and risk mitigation such as ­backgammon and bridge offer the opportunity for high-level betting, and chess, with its ­corollaries with game theory, occupies a prime position. In 2015 at the Sohn conference, hundreds of finance professionals such as Bill Ackman paid $5,000 to watch Magnus Carlsen, the Norwegian grandmaster, play simultaneously against three people, blindfolded. George Soros is a well-known and aggressive chess player, as is Saba Capital founder Boaz Weinstein, a chess prodigy who reportedly got his start at Goldman Sachs & Co. when an executive at the bank who’d played him competitively set him up at the trading desk.

More here – Bloomberg

This Stanford Professor Has a Theory on Why 2017 Is Filled With Jerks

We are living in a world full of assholes. To be sure: There are no census figures to back this up, no national registry from which to draw statistics, but one need only look at the headlines to see that the asshole population has not only grown in recent years but also spawned some new and rather alarming mutants. I mean, Martin ShkreliTravis KalanickPewDiePie?

“You can make the argument that we are living in Peak Asshole,” says Robert Sutton, a Stanford professor who, as the author of the iconic 2007 book The No Asshole Ruleis perhaps the world’s leading expert on the species. According to Sutton, the problem of “disrespectful, demeaning, and downright mean-spirited behavior” is “worse than ever,” which, while it may be bad news for humanity, is good news for The Asshole Survival Guide, the book Sutton came to New York to promote. And he has a point, citing the recent “fiascoes” at Uber and Fox News as examples of “assholes running wild.” Then, of course, there’s “the degeneration of American political discourse,” as Sutton delicately puts it. We are sitting, on a Monday afternoon in mid-September, in what may arguably be the red-hot center of an Asshole Heat Map, if one existed: the pink, veined lobby at the base of the colossal penis that is Trump Tower.

More here – NY Mag

Female hedge funds outperform those run by men

Hedge funds run by women have generated returns two times higher than their male counterparts this year, piling further pressure on a sector that has been branded “male, pale and stale” to recruit more female portfolio managers. The HFRX Women index, which pulls together the performance of female hedge fund managers, has returned 9.95 per cent for the first seven months of the year. This compares with 4.81 per cent for the HFRI Fund Weighted Composite index, a broader gauge of hedge funds across all strategies and genders. The strong performance comes despite women being under-represented across the hedge fund and wider asset management industry. It also tallies with previous data that show that hedge funds run by women outperform those run by men over five years.

More here – Financial Times

Hugh Hendry Is Closing His Fund

The wonderfully irrepressible Hugh Hendry of Noddy car fame ( see this video for the reference) is closing his fund. His rationale is explained here.

The Order Of Things Matters

Every now and again I get sent a magic trading system complete with equity curve, generally these are some sort of magic system someone is flogging that promises massive returns and never has a drawdown. They are the sort of quit your job with $10,000 and intra-day trade FX and make $10,000 per week. If you have been around markets long enough you will have seen this sort of thing – I have to give them some credit because at least they include and equity curve as opposed to simply quoting some mythical average return like fund managers do. Equity curves do convey a lot of information – they tell you about the trajectory of funds that have been invested. You can get a sense of how bumpy the journey might be and whether you could stomach the trip. However, the thing they do not tell you is the role of luck in achieving those particular returns. The returns a trading system generates and in turn its equity curve are uniquely sensitive to luck – not so much in the sense that the trader may have gotten lucky and run into the largest bull market in history which is entirely possible. But rather they are completely dependent upon the order in which the returns where generated.

To give you a simple example of this consider the chart below. In this chart I map the value of $1 invested in the All Ordinaries and $1 invested in the All Ordinaries but with the returns reversed so the return for 2015 becomes the return for 1900 and so on.

True Vs Reversed

I have plotted these on a log scale so you can get a sense of the journey – you can instantly see how simply reversing the returns changes the track of the curve. The reversed values lag behind the true values for 2/3 of the time, it lags for the first 30 odd years, catches up and then begins to lag again from the mid 1970s’. The true returns have a terminal value of $437,097.87 whereas the reversed values top out at $420,087.87. Simply changing the order costs the system $16,941.77

The same is true small changes in return – in the true return the years 1985 and 1986 were power years. They were the high point of the 1980’s bull run in terms of absolute returns with a return of 44% and 52% respectively but in looking at returns the question needs to be asked as to what the curve would look like if these were just average years of 9% return. Traders tend to spend too much time thinking about all the ways it is going to go right but very little time is spent on what could go wrong.

Expanded

The true values have the same terminal value of $437,097.87 wheres the changing of 1985/86 to average years drops the return to  $264,251.37 – a difference of $172,846.50. Whilst this does make for an interesting through experiment it also has practical implications. Trend following systems are built upon the outlier years – this is what generates their returns. If you miss these outliers then your returns over time will be ordinary. Traders do have a habit of missing these years simply because they are either caught in someone else’s narrative and miss market moves, they dont believe the move when it happens because they have a preconceived view of how much an instrument/position is worth or they are caught by the limiting belief that you can never go broke taking a profit. I lost count of people in the mid 1990’s who thought that COH was overvalued at $3.00. Granted its path to $157 has not been linear but its move to $45 was as close as you can get. This move is gone forever for such traders and will never return.

The same situation applies to the random reordering of returns. The chart below is the true returns compare to a randomly reordered sample of the same returns.

Random

The randomly reordered returns show almost a century of relative under performance including a substantial initial drawdown. So when you look at an equity dont take it as gospel, think  of the ways in which the journey could have changed with a few simple alterations or slip ups along the way. The overall aim of any form of system design is to produce a system that is incredibly robust and which shows profitability over a wide range of conditions and events.  In trading you need a little luck but you do not want to be dependent upon it.

HAPPINESS IS NOT ENOUGH

Years ago, I knew one of those guys who seemed to always be happy and excited. He was always just that bundle of warm fuzzies. First to give you a hug. Always happy to see you. Complimented you about things that had no business being complimented. We’ll call him ‘Jon.’

Jon was like a dog, one of those rare people whose enthusiasm and unbridled joy is so unceasing that it actually becomes a little irritating at times. “Can you, just like… hate life a little?” I used to think to myself. And no, I wasn’t wearing eyeliner.

Alas, it never happened. And I felt like an asshole for having such thoughts. I was just jealous, I decided. Or maybe worse: a bad person.

But I never felt like a bad person for that long, because Jon was so damn fun and engaging, that you couldn’t help but be lifted up by his spirits. He always wanted to know what was going on in your life. He was always encouraging. He was always happy for you and proud of you, even when you weren’t happy or proud of yourself.

I eventually just decided that Jon was one of those people who had it figured out. One of those people that the shittier parts of life seemed to pass on by. A person who somehow managed to walk between the raindrops. A person who was blessed and knew it and spent his days trying to make others feel just as great as he did.

Then one day, I walked in on him doing lines of coke off the back of a toilet.

What the fuck?

More here – Mark Manson

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