Ask me anything about finance/investing - Page 2

On January 04 2010 21:57 Sicks Macks wrote: Show nested quote + On January 04 2010 21:43 TenBagger wrote: what fund do you work at? Don't feel comfortable saying. I've posted enough silly stuff over my time here that I'd rather keep IRL separate.

fair enough.

sounds like you are primarily involved in fundamental value. what other strategies does your fund utilize? are you located in NYC?

On January 04 2010 21:45 Smuft wrote: If we can't be bothered to look deeply into our financial investment decisions, who should we have do it for us? If we can be bothered and decide to do a little bit of analyzing on our own (read a few books, talk to people, spend ~10 hours a week on it), how would you suggest we begin this path? What kind of ROI can we expect in each scenario over the next 20 years?

Your expected ROI is almost going to be exactly proportional to your risk tolerance (this is called beta), the excess returns over what you would expect for your risk appetite (alpha) is the stuff that being better than everyone else gets you. That said this alpha is a really small part of your total experienced return, so almost everyone who has less than 50m or so to invest is better off paying someone else to chase alpha for them, or better yet accepting that alpha is really tough too find and just investing in really low cost index funds. I would recommend investing in really low cost index funds. It's much easier to beat the average investors return by finding a low expense ratio than by picking a genius out a room full of very smart fund managers who may have gotten lucky.

The most important decisions you need to make are about when you need your money, and constructing your portfolio accordingly. Again, if you post a specific time horizon I'd be happy to suggest some asset classes you may want to look into.

On January 04 2010 22:03 TenBagger wrote: Show nested quote + On January 04 2010 21:57 Sicks Macks wrote:   On January 04 2010 21:43 TenBagger wrote: what fund do you work at? Don't feel comfortable saying. I've posted enough silly stuff over my time here that I'd rather keep IRL separate. fair enough. sounds like you are primarily involved in fundamental value. what other strategies does your fund utilize? are you located in NYC?

I'm Boston-based, my fund is strict fundamental value. I work with a bit of the NYC sell-side though. You?

On January 04 2010 21:57 Joe wrote: Question: Which of the following investment scenarios do you preffer and why with these assumptions: - money to invest: $250k - liquidity: high - time horizon: 3-5 years - risk acceptance: low Scenario 1: Investing into shares/commodities or similar funds. Scenario 2: Buyin 1-2 real estate properties, renting them and selling them in a couple years.

If your risk acceptance is low then it's not even a question: Scenario 1. Buying 1-2 real estate properties, in addition to being a headache is an incredibly concentrated bet on a specific local real estate market.

I'm actually going to be starting a banking job in July once I finish school. Having worked with the sell side, what in your opinion are the most important skills to have for someone on the sell side? Another unrelated question, is it common for bankers to go into hedge funds? If so, how does that process compare with the process of going into private equity?

just curious what are normal % of profit for low -moderate and high risk investments.

On January 04 2010 22:14 Pacifist wrote: I'm actually going to be starting a banking job in July once I finish school. Having worked with the sell side, what in your opinion are the most important skills to have for someone on the sell side? Another unrelated question, is it common for bankers to go into hedge funds? If so, how does that process compare with the process of going into private equity?

Most important skill anywhere on the sell side is work ethic. Whether IB or sales those people work long hard hours. I don't know your specific job so I can't really say more, but it's tough (but rewarding) work. IB ---> PE is a much more typical path than IB ---> HF because PE recruits pretty exclusively from IB (and consulting) because it's still so deal-driven (I for example, bet I could not get a job in PE right now, because I don't have a deal background). Nothing precludes you from going IB ---> HF, but I don't know tons of people with that background.

On January 04 2010 22:20 Baal wrote: just curious what are normal % of profit for low -moderate and high risk investments.

I dunno, long run risk free rate might be 3% per year, global stock basket might be 9% with a 8% annual standard deviation with a pretty linear relationship between expected return and risk (so bonds returning 6% would have a 4% stdev for ex, same for higher). I'm sure there is some academic work on this (I saw it in undergrad), I just don't know what the real numbers are. Someone else on here might, I'll look around for real numbers in a bit.

individual assets , like individual stocks, will actually have higher risk than this relationship would suggest, but that risk is eliminated in a diversified portfolio.

Specific hedging strategies can further mess with all this. For example Long Petrobras/Short a Global integrated Index and Short the Real can remove the currency and oil price (And integrated oil sentiment) risks from PBR's stock.

On January 04 2010 22:36 Sicks Macks wrote: I dunno, long run risk free rate might be 3% per year, global stock basket might be 9% with a 8% annual standard deviation with a pretty linear relationship between expected return and risk (so bonds returning 6% would have a 4% stdev for ex, same for higher). I'm sure there is some academic work on this (I saw it in undergrad), I just don't know what the real numbers are. Someone else on here might, I'll look around for real numbers in a bit.

I'm a first year stats student who spent the better part of my summer reading everything I could find on everything I could think of, a fair chunk of which ended up being related in some way to Finance. I know still know very little overall (taking macro/micro next semester), but I'm pretty sure your numbers are spot on. 8% deviation and like 6-9% for stocks I remember being burned into my head from reading it so many times.




My question is, what kinds of index funds would you recommend for most of the people you're replying to? (small amounts of cash like 25k have been thrown around a couple times) You mentioned emerging markets, so would the best choice be, for example, an indian/chinese index, or should one instead play it safe with a "global" portfolio split between multiple indexes.

Specific fund names would be great here. Just want to get another opinion.

Fwiw, my plan up until now was to throw a couple k into the largest EFT I could find (I'm in Canada), close my eyes and check in it in 5 years.

On January 04 2010 22:51 SemPeR wrote: Show nested quote + On January 04 2010 22:36 Sicks Macks wrote: I dunno, long run risk free rate might be 3% per year, global stock basket might be 9% with a 8% annual standard deviation with a pretty linear relationship between expected return and risk (so bonds returning 6% would have a 4% stdev for ex, same for higher). I'm sure there is some academic work on this (I saw it in undergrad), I just don't know what the real numbers are. Someone else on here might, I'll look around for real numbers in a bit. I'm a first year stats student who spent the better part of my summer reading everything I could find on everything I could think of, a fair chunk of which ended up being related in some way to Finance. I know still know very little overall (taking macro/micro next semester), but I'm pretty sure your numbers are spot on. 8% deviation and like 6-9% for stocks I remember being burned into my head from reading it so many times. My question is, what kinds of index funds would you recommend for most of the people you're replying to? (small amounts of cash like 25k have been thrown around a couple times) You mentioned emerging markets, so would the best choice be, for example, an indian/chinese index, or should one instead play it safe with a "global" portfolio split between multiple indexes. Specific fund names would be great here. Just want to get another opinion. Fwiw, my plan up until now was to throw a couple k into the largest EFT I could find (I'm in Canada), close my eyes and check in it in 5 years.

I really would recommend diversification unless you intend to make a specific bet. Something like VEIEX for emerging markets or VHGEX for everything. I guess these aren't available in Canada, but find a mutual fund or ETF that tracks indexes such as the MSCI EM index, MSCI AC World, MSCI AC World ex US, or FTSE All World then find the one with the lowest expense ratio.

How can I invest small amounts like 1k in high risk ventures?

Do you use statistical distributions and models at all? What's useful?

What's the cheapest/best value way for me to exchange money across countries?

On January 04 2010 23:32 genjix wrote: How can I invest small amounts like 1k in high risk ventures? Do you use statistical distributions and models at all? What's useful? What's the cheapest/best value way for me to exchange money across countries?

1k in high risk ventures? hmm, you can pretty specific ETFs that are juiced up naturally because of the industry/country they track. Stuff like oil services, india, shit like that. They also have internally leveraged ETF's like 3x S&P 500 or 3x short S&P 500. Wouldn't really recommend it.

I built a lot of factor testing models earlier in my career that essentially regressed forward performance of various companies with various financial factors. Using the significant ones that also dovetail with my investment process I built a number of quantitative screens I use to generate new ideas. Good financial engineers that avoid data mining (misleading conclusions) are one of a few groups of people that genuinely have an edge.

I don't know a good answer to the last question, nor do I think I can give a better answer than anyone else, sorry

On January 04 2010 23:41 Sicks Macks wrote: I built a lot of factor testing models earlier in my career that essentially regressed forward performance of various companies with various financial factors. Using the significant ones that also dovetail with my investment process I built a number of quantitative screens I use to generate new ideas. Good financial engineers that avoid data mining (misleading conclusions) are one of a few groups of people that genuinely have an edge.

Why is data mining a bad idea? I've had it in my mind now that I can discover some new Poker concepts by data mining large random hand samples.

I'm interested in programming (mathematical) simulation games or building statistical models to somehow help improve my game but so far haven't seen anywhere blindingly applicable.

Maybe Prospect theory input into some model/function to derive an estimate that fits with the data (as you described above). Machine learning seems quite popular but I feel a bit sketchy using it since it can give dodgy estimates when all the given points fit.

Hey man! I am looking to getting a job in finance. I just graduated this December from college (Gonzaga, its a decent school and good business program I'd say) and I have no internship/work experience because I opted to play poker and be a summer league swim coach instead. My cumulative gpa was a 3.4 (although way higher in business and finance classes, like a 3.7), but I basically have nothing to put on my resume. I didn't do any business clubs or anything. Yet, I feel I am smarter than most kids in my finance classes at my college and have successful poker as my background so I think I should be able to get into this profession. Again, I know literally nothing about finance other than the classes I took and have not even kept a keen eye to current events etc due to it not really feeling relevant to my life (in the past).

Do you have any advice for a 23 year old kid like me? Should I look for any possible job even if it extremely low level, and try to build up from there? Are there internships I can do ? I just decided I wanted to get a job instead of poker full time and am literally clueless. I definitely don't want to be cold calling or sales, I'm not good at that type of stuff.

I really want to figure out the next few years of my life, but I don't want to be hasty and make a long term life -ev decision (such as selling myself short and joining a finance company for less pay that also would not give me skills that would be beneficial to translate into a better career with a different company).

I've also been thinking about not even going into finance because it seems like it would be a stressful job that would get a person to be preoccupied with money even outside of work, which doesn't really fit me.

More questions:
Did you ever use algorithms or computer models? And were the algorithms procedural? Do you ever use complex system theory or chaos theory? Maybe by introducing small errors into your dataset or factors?

On January 05 2010 00:03 genjix wrote: Show nested quote + On January 04 2010 23:41 Sicks Macks wrote: I built a lot of factor testing models earlier in my career that essentially regressed forward performance of various companies with various financial factors. Using the significant ones that also dovetail with my investment process I built a number of quantitative screens I use to generate new ideas. Good financial engineers that avoid data mining (misleading conclusions) are one of a few groups of people that genuinely have an edge. Why is data mining a bad idea? I've had it in my mind now that I can discover some new Poker concepts by data mining large random hand samples. I'm interested in programming (mathematical) simulation games or building statistical models to somehow help improve my game but so far haven't seen anywhere blindingly applicable. Maybe Prospect theory input into some model/function to derive an estimate that fits with the data (as you described above). Machine learning seems quite popular but I feel a bit sketchy using it since it can give dodgy estimates when all the given points fit.

This is getting out of my area of expertise, but essentially quantitative analysis of stocks involves an essentially limitless set of factors and a limited historical sample. Phantom correlations can and do occur even if top-level financial data-mining. The most successful quants use sample-analysis to test hypotheses based in sound theoretical analysis, rather than as the first step.

lol ic sample-size

sorry if im throwing this off topic- not my intention. but do you build computer models with procedural algorithms? i hear all the time in circles im in about the wonders of chaotic system theory in finance so i'm curious as to whether how much of that is hot air from academia or whether real financers use it.

like poker players and game theorists.

On January 05 2010 00:04 Big_Rob_48 wrote: Hey man! I am looking to getting a job in finance. I just graduated this December from college (Gonzaga, its a decent school and good business program I'd say) and I have no internship/work experience because I opted to play poker and be a summer league swim coach instead. My cumulative gpa was a 3.4 (although way higher in business and finance classes, like a 3.7), but I basically have nothing to put on my resume. I didn't do any business clubs or anything. Yet, I feel I am smarter than most kids in my finance classes at my college and have successful poker as my background so I think I should be able to get into this profession. Again, I know literally nothing about finance other than the classes I took and have not even kept a keen eye to current events etc due to it not really feeling relevant to my life (in the past). Do you have any advice for a 23 year old kid like me? Should I look for any possible job even if it extremely low level, and try to build up from there? Are there internships I can do ? I just decided I wanted to get a job instead of poker full time and am literally clueless. I definitely don't want to be cold calling or sales, I'm not good at that type of stuff. I really want to figure out the next few years of my life, but I don't want to be hasty and make a long term life -ev decision (such as selling myself short and joining a finance company for less pay that also would not give me skills that would be beneficial to translate into a better career with a different company). I've also been thinking about not even going into finance because it seems like it would be a stressful job that would get a person to be preoccupied with money even outside of work, which doesn't really fit me.

Hmmm, you're in a tough spot because while Gonzaga is a very school I don't think it has a very strong alumni network in finance outside of Seattle (just a guess). If you do want to try the finance route, you're going to need to get caught up on what's happening, and maybe even do some in-depth of a company (say it's for your own portfolio) just so you have something to really go into depth on in an interview in spots where other kids would be talking about a project they did at an internship.

There are a few routes here. You can really tap into your personal network to ask if anyone knows anybody that can get you an interview at a top flight out of undergrad program (I think even then it's going to be tough without a 4.0 or a near-Ivy degree these days). Similarly you can apply to an analytical role in a less prestigious area of banking or asset management. In either case you're going to have to rely on the networks you have to get in the door, and then make sure you can articulate your thought process (And how your thought process is more valuable than other applicants) really well. This is where having a specific piece of complex financial analysis you've done would be really great.

The other thing you can do is get a job in finance where you work directly with VP's+. Once you get there, work hard, and make sure you take on projects that allow you to differentiate yourself. Befriend the higher management and let them know what you want to do and why you want to do it. This roudnabout process is sometimes helpful for the really smart people who have a slim resume, because it's difficult to really leap past your resume in an interview, but a few months in the workplace might work.

Buy side is better than sell-side as far as life EV is concerned.

On January 05 2010 00:06 genjix wrote: More questions: Did you ever use algorithms or computer models? And were the algorithms procedural? Do you ever use complex system theory or chaos theory? Maybe by introducing small errors into your dataset or factors?

I do use algorithms and larger computer models which I wrote. The rest of your question refers to things I leave to the experts. I rely on sell-side quants for the more complex stuff. Tbh I wish I understood the computer programming and statistical programming aspect better but it's just not my background.

On January 05 2010 00:21 genjix wrote: lol ic sample-size sorry if im throwing this off topic- not my intention. but do you build computer models with procedural algorithms? i hear all the time in circles im in about the wonders of chaotic system theory in finance so i'm curious as to whether how much of that is hot air from academia or whether real financers use it. like poker players and game theorists.

People do procedural modeling. Incredibly interesting stuff but it's all greek to me.

EDIT: Procedural modeling means something different than I thought. If it's a useful modeling technique be sure that prop desks at GS and friends have tried it.