Archives of “Liberalism” tag

rss

The Sheep and the Herd

  
  Education
#  #  #  #  #

American writers of the 20th century, that talks about the stupidity of sheep. He says “the individual sheep is stupid, but the herd is very smart. They always know the right way to go, the right thing to do (especially when guided by the dog and shepherd).

The stock market reminds me of that every time there is an earnings report of a major company. It originally does something stupid, as if the company reporting like Intel, Netflix, or Goldman $achs were the only company. But then after a proper time, it does the right thing.

Trade Sizing Depends on Risk Aversion and Volatility

  
  Education
#  #  #  #  #  #  #  #
  • Risk aversion
    • When I was a young man I wanted to devise objective risk systems. In other words, once you have a system, what is the right size to trade, period.
    • After years of working on this I convinced myself that it did not have a unique answer. You need at least one subjective piece of the puzzle to put it together, and that is an individual’s risk aversion. Now that is subjective.
    • There is no rule that says how averse you should be to risk, that is an integral element of your personality. But unless you know how averse to risk you are or unless you can impute risk aversion to your clients, you really can’t settle the question of how big you should trade.
  • Volatility
    • Estimating volatility determines to a large extent what your position sizes should be.
    • A slight improvement in our volatility estimators can potentially produce a significant long-term benefit.
Go to top