What is the Big-Big Picture?

[Guest HarryLong]

One point and one question:

 

1) If that Barclay's data only lists funds that voluntarily disclose their results, then it's pretty clear that there is huge danger of selective reporting (i.e., only successful funds will openly announce their results.)  I find it hard to believe that systemic funds, in aggregate, were only down 8% in 2008.  Sorry, just not believable for me. 

 

2) What do we mean by "systems?"  How much computer involvement constitutes a system? For example, from what I have seen with Graham and Schloss, they pretty much did a sort of "quant" work before computers existed (i.e., if a stock passed their strict ratio criteria, they invested regardless of the qualitative factors. They felt that a very diversified portfolio of stocks that passed these criteria didn't require qualitative analysis.)  Personally, I think they simply stumbled on something that academics are now starting to admit: small cap low P/B stocks outperform the market as a whole.  They just didn't know it at the time.  So, what constitutes a system?

 

As you can see in the link, they define it as at lease 95% systematic.

[Guest]

This better?

 

http://historicalreturns-sp500.blogspot.com/

 

Not much. That is nearly three years old. Harry, seriously, man?

 

The link I gave you is at the end of last year. It is measuring the time period of your link - Jan 1987 through the end of last year. The S&P 500 beat your index...after tax I'm sure it would've been even better.

 

 

[JSArbitrage]

As you can see in the link, they define it as 95% systematic.

 

First, defining "systems" as being "95% systematic" is in no way a helpful or clarifying definition.

 

But I didn't mean what did Barclay's define as a system, I meant to ask what do WE (the board) define as a system? Was Graham/Schloss "systemic?" It seems like they just did what a computer could do before computers existed.  So is it fair to call it a system?  That's just an example.

[Guest HarryLong]

This better?

 

http://historicalreturns-sp500.blogspot.com/

 

Not much. That is nearly three years old. Harry, seriously, man?

 

The link I gave you is at the end of last year. It is measuring the time period of your link - Jan 1987 through the end of last year. The S&P 500 beat your index...after tax I'm sure it would've been even better.

 

As you know, even when changes are made to the S&P 500, no taxes are assumed. All performance numbers for any index that I am aware of are pre tax.

[Guest]

This better?

 

http://historicalreturns-sp500.blogspot.com/

 

Not much. That is nearly three years old. Harry, seriously, man?

 

The link I gave you is at the end of last year. It is measuring the time period of your link - Jan 1987 through the end of last year. The S&P 500 beat your index...after tax I'm sure it would've been even better.

 

As you know, even when changes are made to the S&P 500, no taxes are assumed. All performance numbers for any index that I am aware of are pre tax.

 

Right. I'm fairly confident that an index with its minimal changes is far more tax efficient than the aggregate for the "systems" you favor. Your systems did not beat the index before taxes. I don't see why you love your systems so much.

[Guest HarryLong]

OK, here you go. Page 2. The Systematic Index just blows the S&P 500 away:

 

http://docs.google.com/viewer?a=v&q=cache:pjyOsS6wW0cJ:www.trendfollowing.com/whitepaper/systematictrading.pdf+Barclay+systematic+traders+index+vs.+S%26P+500&hl=en&gl=us&pid=bl&srcid=ADGEESgtxSKITpVx8pgPlTq-AZDOdfWsIwhhwImbTYxfmyUcb4Nniexid7ohnkUY_7BUBwiwHrCJQyqWwk9ud-JJFh5gzotBy5n8HZckxJhvBz2d5qs9c5dHgaTTgWDNbX8noIvmLkRa&sig=AHIEtbTImxmEUdnFATsH0VaPFmb6Tz4kfQ

[Guest HarryLong]

This better?

 

http://historicalreturns-sp500.blogspot.com/

 

Not much. That is nearly three years old. Harry, seriously, man?

 

The link I gave you is at the end of last year. It is measuring the time period of your link - Jan 1987 through the end of last year. The S&P 500 beat your index...after tax I'm sure it would've been even better.

 

As you know, even when changes are made to the S&P 500, no taxes are assumed. All performance numbers for any index that I am aware of are pre tax.

 

Right. I'm fairly confident that an index with its minimal changes is far more tax efficient than the aggregate for the "systems" you favor. Your systems did not beat the index before taxes. I don't see why you love your systems so much.

 

Again Sir, evidence based reasoning disproves your point. Page 2

 

http://docs.google.com/viewer?a=v&q=cache:pjyOsS6wW0cJ:www.trendfollowing.com/whitepaper/systematictrading.pdf+Barclay+systematic+traders+index+vs.+S%26P+500&hl=en&gl=us&pid=bl&srcid=ADGEESgtxSKITpVx8pgPlTq-AZDOdfWsIwhhwImbTYxfmyUcb4Nniexid7ohnkUY_7BUBwiwHrCJQyqWwk9ud-JJFh5gzotBy5n8HZckxJhvBz2d5qs9c5dHgaTTgWDNbX8noIvmLkRa&sig=AHIEtbTImxmEUdnFATsH0VaPFmb6Tz4kfQ

[Guest HarryLong]

Looks like the evidence is pretty clear  ;D

 

[Guest]

This better?

 

http://historicalreturns-sp500.blogspot.com/

 

Not much. That is nearly three years old. Harry, seriously, man?

 

The link I gave you is at the end of last year. It is measuring the time period of your link - Jan 1987 through the end of last year. The S&P 500 beat your index...after tax I'm sure it would've been even better.

 

As you know, even when changes are made to the S&P 500, no taxes are assumed. All performance numbers for any index that I am aware of are pre tax.

 

Right. I'm fairly confident that an index with its minimal changes is far more tax efficient than the aggregate for the "systems" you favor. Your systems did not beat the index before taxes. I don't see why you love your systems so much.

 

Again Sir, evidence based reasoning disproves your point. Page 2

 

http://docs.google.com/viewer?a=v&q=cache:pjyOsS6wW0cJ:www.trendfollowing.com/whitepaper/systematictrading.pdf+Barclay+systematic+traders+index+vs.+S%26P+500&hl=en&gl=us&pid=bl&srcid=ADGEESgtxSKITpVx8pgPlTq-AZDOdfWsIwhhwImbTYxfmyUcb4Nniexid7ohnkUY_7BUBwiwHrCJQyqWwk9ud-JJFh5gzotBy5n8HZckxJhvBz2d5qs9c5dHgaTTgWDNbX8noIvmLkRa&sig=AHIEtbTImxmEUdnFATsH0VaPFmb6Tz4kfQ

 

Finally, Harry! There is something that looks like you might be on to something. The Barclay's link that you provided gave the returns at something like 9.16%. The CAGR link that I provided gave the S&P 500 returns at something like 9.6%. Many of these systems are not tax efficient since they have high turnover. That is not faulty logic, Harry.

 

So, what is the difference between this link that you provided and the original Barclay's link?

[bmichaud]

This is embarrassing

[Guest HarryLong]

There is a pretty picture showing that at the upper right side of the graph, that the BarclayHedge Systematic Traders Index does better than the S&P  :P

 

Very clear, very obvious, not controversial at all. I'll even send anyone who can't see it reading glasses. Page 2.

 

Now confirmation bias is effecting the eyesight of its sufferers. This is one for the medical journals! I am concerned, because to practice a discretionary style, one needs to be able to read annuals reports, but it seems that things are fuzzy for you guys  ;D

[Guest]

There is a pretty picture showing that at the upper right side of the graph, that the BarclayHedge Systematic Traders Index does better than the S&P  :P

 

What is the difference between these two?

 

http://www.barclayhedge.com/research/indices/cta/sub/sys.html

 

and

 

https://docs.google.com/viewer?a=v&q=cache:pjyOsS6wW0cJ:www.trendfollowing.com/whitepaper/systematictrading.pdf+Barclay+systematic+traders+index+vs.+S%26P+500&hl=en&gl=us&pid=bl&srcid=ADGEESgtxSKITpVx8pgPlTq-AZDOdfWsIwhhwImbTYxfmyUcb4Nniexid7ohnkUY_7BUBwiwHrCJQyqWwk9ud-JJFh5gzotBy5n8HZckxJhvBz2d5qs9c5dHgaTTgWDNbX8noIvmLkRa&sig=AHIEtbTImxmEUdnFATsH0VaPFmb6Tz4kfQ&pli=1

 

Do you know the difference? These results are dramatically different.

[PlanMaestro]

Harry, what are your audited returns?

 

Please stop cluttering the RSS feed

 

[Guest HarryLong]

It seems the only difference is that you dramatically over-estimated the performance of the S&P to the systematic traders index and got it all wrong  ;D

[Guest HarryLong]

Now people can't see or read when they are faced with disconfirming evidence. Fascinating. Munger was right!

[Guest]

It seems the only difference is that you dramatically over-estimated the performance of the S&P to the systematic traders index and got it all wrong  ;D

 

Hmmm...I don't really see how I overestimated anything. I provided a counter link to your original link and...it wasn't sales material.

 

What is the difference in the two links you provided?

[libor.plus1]

Everyone can relax. I'm here now.

 

I just got back from the hardware store and bought us a ruler. It's 4 inches, but I think we can fold it in half and start measuring.

[Guest]

Everyone can relax. I'm here now.

 

I just got back from the hardware store and bought us a ruler. It's 4 inches, but I think we can fold it in half and start measuring.

 

hahaha.  ;D

[ERICOPOLY]

In a few years we can see how the MSFT bet goes.

 

Harry's system is shorting it.

 

Will the computer be "eviscerated"?

 

I was short, I covered. How did you like the "short" thread?

 

I didn't pay much attention to it.  I pay attention to long ideas, and normally ignore the short ones.

 

However why were you shorting a large cap given your thinking around outsmarting the herd of people who follow large caps?

 

Even if any given large cap situation ends up being profitable, overall, the odds in the large cap space are probably stacked against us, and if they are not right now, will increasingly be over time.

 

As you know, I am not a discretionary investor, so I'm not at an inherent disadvantage in the large cap space.

 

Everybody wins with MSFT.  You won because you traded on a dip, and anyone that held on during that period beat the market and will continue to do so I believe if held for a sufficient time.

 

Your point though about being discretionary....

 

I feel the large cap space is going to be one where people basically agree on the future earnings.  I'm not for example going to have any advantage in valuing WFC's 2012 or 2013 forecast versus the experts in the field.  Yet, you take the consensus forecasts of banks for example.  The sector is so out of favor psychologically that they can be cheap and easy to spot as cheap by the discretionary investor without needing to disagree with the consensus earnings estimates (in other words, Mr. Market is at odds with the industry analysts).  So you can just side with the people who spend their lives specializing in covering the banking sector.  A person can easily win if they merely are determined to wait out the turn in psychology, which will come when time passes along.  It doesn't really matter if multiples ever expand -- you just won't do poorly long term making 15-20% earnings yield when the overall market is getting 7%.

 

So just because they are heavily analyzed doesn't mean squat during these exceptional times. 

 

Similarly, Coca Cola was heavily analyzed but any old fool could see that at 40x earnings the long term returns would be poor.

 

So there is no reason to stay away from large caps when the prices are completely out of whack with what reasonable industry experts agree will be the likely earnings.

 

The time to stay away is when the price too closely reflects what they believe will be the future earnings.  In other words, don't try to be a better forecaster of earnings than the industry experts.  Rather, just buy when the market prices the assets in complete disregard for their expert opinions.

 

But they are sometimes totally wrong of course.  What were the 2008 earnings forecasts for Citigroup back in early 2007?

 

But nobody seriously predicts a WFC or a USB is about to go under -- that's not why they're cheap relative to the market as a whole.

 

So very small caps are just different in that you might be the only one covering them.... where that certainly won't be the case with large caps.

 

At any rate, you can play a psychology angle with the large caps (high earnings yield because they are hated) even though you have no information angle.

[Myth465]

Everyone can relax. I'm here now.

 

I just got back from the hardware store and bought us a ruler. It's 4 inches, but I think we can fold it in half and start measuring.

 

LOL, I plan on stealing this one.

 

Wading into a church preaching about Islam is inmo at best a waste of time. But carry on.....

[bmichaud]

Everyone can relax. I'm here now.

 

I just got back from the hardware store and bought us a ruler. It's 4 inches, but I think we can fold it in half and start measuring.

 

Hahahahahahah phenomenal

[Kraven]

Harry, you are a gentleman and a scholar.  With your mystery returns, I proclaim you the greatest investor on this board.

[Guest Hester]

Harry, you are a gentleman and a scholar.  With your mystery returns, I proclaim you the greatest investor on this board.

 

Insulting, forget this board, Harry is the best investor in the world. Just ask him.

[Rabbitisrich]

I am no expert in index construction but the Barclay's Systematic Trader's Index contains a few biases. It accepts firms with a minimum 4 year history, but then equal weights the return. The number of index participants grew by 5% a year over the last 10 years, and by 6% from '01 to '08. According to Sol Waksman, the overall CTA index shows 15% to 20% annual turnover. We would need more information to tease out survivorship bias, but one possibility is that younger firms, with presumably smaller capital, significantly contribute to index performance due to the lower starting point.

 

Also note that performance numbers are voluntarily reported and consists of around 1/3 of the index coverage universe. When a manager decides to stop reporting figures, the performance record is recorded as 0% from that date until the end of the reporting period.

 

The index might also benefit from the momentum benefits of survivorship. For example, currency trading participants jumped from '03, which means that the included firms started from at least 1999, following the volatility of the IMF crisis and russian default. Again, when they stop reporting, their results are simply recorded as 0% until the end of the reporting date.

 

One counter argument is that all indices possess some degree of survivorship bias. But S&P movements are replicable and the transaction costs are fairly easy to model. Without more information regarding the money flow policies of the participants--are taxation policies disclosed or controlled by Barclays?--a direct chart comparison to the S&P is of limited value.

[Guest misterstockwell]

Harry, you are a gentleman and a scholar.  With your mystery returns, I proclaim you the greatest investor on this board.

 

Insulting, forget this board, Harry is the best investor in the world. Just ask him.

 

Harry + Hal9000>ALL!!!