The Rational Reminder Podcast Five Factor Thinking: Using Factors to Spot Trends and Guide Decision Making (EP.40)
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Apr 4, 2019 This discussion unpacks the fascinating world of factor investing and its relevance for decision-making. Learn why annuities are often overlooked and how they differ from traditional portfolios. They explore whether investment performance stems from luck or genuine skill, backed by insights from the Fama-French models. Dive into the evolution of factor models, discovering how adding factors enhances explanatory power and the historical persistence of factor premiums. Plus, find out how sample timing can dramatically affect investment outcomes!
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Concentrated Hedge Fund Win And Crash
- Cameron described Sellers Capital, a concentrated hedge fund that owned Contango Oil and soared from $3 to $92 before collapsing in 2008.
- The manager retired after the losses, illustrating the danger of high-conviction concentrated bets.
Ask Four Questions About Past Performance
- Ask four key questions before trusting spectacular past performance: statistical significance, luck versus skill, long-term track record, and repeatability.
- These questions help separate genuine skill from luck and survivorship bias.
Skill Needs Decades Of Evidence
- To prove a manager's skill statistically you need sustained alpha of about 2% with low volatility.
- That requires roughly 36 years of consistent outperformance to reach 95% confidence.
