Animal Spirits Podcast

Talk Your Book: How to Eliminate Negative Alpha

5 snips
Feb 10, 2025
Cole Wilcox, Founder and Chief Investment Officer of Longboard Asset Management, discusses the effectiveness of trend-following strategies in today's market. He emphasizes the importance of managing investor expectations and recognizes the challenges posed by emotional decision-making. The conversation dives into the benefits of alternative investments for portfolio diversity, the advantages of small to mid-cap stocks, and the necessity of accepting investment drawdowns. Wilcox advocates for systematic portfolio management and strong advisor collaboration to optimize results.
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INSIGHT

Power Law Distribution of Stock Returns

  • Stock market returns follow a power law distribution, not a bell curve.
  • Most stocks perform poorly; a small minority drive cumulative returns.
INSIGHT

Systematic Investing and Emotional Biases

  • Systematic processes, like trend following, eliminate emotional biases in investing.
  • These biases, such as holding losers and selling winners, lead to negative alpha.
ADVICE

Diversification in Trend Following

  • Diversify trend-following strategies across asset classes or securities.
  • Avoid concentrated positions to mitigate the impact of individual stock performance.
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