Flirting with Models

15 Ideas, Frameworks, and Lessons from 15 Years

Aug 28, 2023

On their 15th anniversary, the speaker reflects on their unexpected journey from starting the company in undergrad to its success. They share 15 lessons learned in the financial industry, including risk transformation, diversification, and the challenges of drawdowns and backtesting. They also discuss the importance of diversification in investment portfolios and the nature of backtesting.

33:29

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Quick takeaways

Diversification spreads risk across different types, making portfolios sensitive to a wider range of risks, but less sensitive to any specific risk.

Investment strategies involving higher risk, like value investing, offer higher returns, but require resilience during periods of underperformance to maintain the risk premium.

Deep dives

Risk cannot be destroyed, only transformed

Risk is an essential part of financial markets, driving pricing and the transfer of risk. Diversifying a portfolio does not eliminate risk but rather spreads it across different types of risks. This means that portfolios become sensitive to a wider range of risks, but less sensitive to any specific risk.

Lesson 3: Diversifying Beta vs. Expensive Alpha

01:11

Timing, Diversification, and Predictability in Returns

01:23

Introduction

2min

15 Lessons Learned from 15 Years

5min

The Importance of Diversification in Investment Portfolios

20min

Challenges of Drawdowns, Jensen's Inequality, and Backtesting in Investment

5min

The Nature of Backtesting and the Market's Correctness

2min

Today, August 28th, 2023, my company Newfound Research turns 15. It feels kind of absurd saying that. I know I’ve told this story before, but I never actually expected this company to turn into anything. I started the company while I was still in undergrad and I named it Newfound Research after a lake my family used to visit in New Hampshire. I fully expected the company to be shut down within a year and just go on to a career on Wall Street.

But here we are, 15 years later. I’m not sure why, but this milestone feels larger than any recent birthday I can remember. I’m so incredibly grateful for what this company has given me. I’m grateful to my business partner, Tom. I’m grateful to employees – both past and present – who dedicated part of their lives and careers to work here. I’m grateful to our clients who supported this business. I’m grateful for all the friends in the industry that I’ve made. And I’m grateful to people like you who have given me a bit of a platform to explore the ideas I’m passionate about.

Coming up on this anniversary, I reflected quite a bit on my career. And one of the things I thought about was all the lessons I’ve learned over the years. And I thought that a fun way to celebrate would be to take the time and write down some of those ideas and lessons that have come to influence my thinking.

So, without further ado, here are 15 lessons, ideas, and frameworks from 15 years.

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Flirting with Models

15 Ideas, Frameworks, and Lessons from 15 Years

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

Risk cannot be destroyed, only transformed

No pain, no premium

Diversifying cheap beta is valuable

Diversification has multiple forms

Lesson 3: Diversifying Beta vs. Expensive Alpha

Timing, Diversification, and Predictability in Returns

Remember Everything You Learn from Podcasts