Talk Your Book: How to Eliminate Negative Alpha

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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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On this episode of Animal Spirits: Talk Your Book, Michael Batnick and Ben Carlson are joined by Cole Wilcox, Founder and Chief Investment Officer of Longboard Asset Management to discuss if trend following still works for stocks, how to set the expectations for investors using trend following, positioning alts within a portfolio, and much more!

Find complete show notes on our blogs...

Ben Carlson’s A Wealth of Common Sense

Michael Batnick’s The Irrelevant Investor

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