it's interesting that he does actually show alpha. his longs underperform the market over last five years (94% vs. 95.5%) but his shorts do better than one would expect (about 80% vs 87%). What he's managed to do is find two groups of stocks that both underperform the market - both his longs and his shorts underperform the market. So if he simply purchased the S&P 500 minus his shorts and his longs, he would have a market beating fund.
That's not true. You have to adjust the returns for units of risk. For each sigma unit, what is his marginal return on capital. THAT is what he is after. You can't simply take net returns of longs and shorts.
Pretty sure I'm going to believe a $25B Hedge Fund Manager with actual statisticians and quants over some guy on the internet (EliteTrader at that).
This violates the central limit theorem. If you randomly pick stocks from a large sample assuming a normal distribution, then the random picker will draw the mean expected value from that sample. In other words, the implication is that most fund managers on avg will get the avg or the mean return in which there is no statistical significance between their performance and a random picker. This is NOT the same thing as a random picker outperforming 99% of fund managers. It's not possible because with both samples, their expected value should be the same, not different. Which is the real issue.
Show me a hedge fund manager of any size who backs up your claim. This is stats 101 my friend. No need to believe me but you can believe everyone who has ever taken an undergrad level stats class, a set of individuals that clearly doesn't include thenotsogreatgatsby. Again I think you're misremembering a story about a random portfolio outperforming active stock pickers, and even then 99% is just a bit of an exaggeration but would love to see your source nonetheless.
https://drive.google.com/file/d/0B9_mlYkiToWIY2luZGRqUU1DVFFfbmMwS2dLN3VCdDlHYy13/view?usp=sharing They have put over $1B into this strategy and it has been beating the S&P 500
Whoa there Nelly. This is completely different from what you said. I think you missed the point of the article. He is talking about the concentration effect in market cap weighted indices. Has nothing to do with randomness or beating hedge fund managers, hell they weren't even mentioned. The topic of this study was completely different from your post. LOL.
No it wasn't. I said picking random 50 stocks will beat the S&P 500. Don't make assumptions about beating managers or other retarded shit you spew out of your mouth. In October 2011, David Harding published the results of our research into the efficiency, or otherwise, of market-capitalisation weighted portfolios1 result was that randomly chosen equally weighted portfolios had outperformed the S&P500 from 1965 through to 2011.
This is what you said and it's not true. "Picking 50 random stocks will outperform the S&P 500 99% of the time. Investing isn't this hard people." Not even close to being true. You don't even understand what his study is implying.
Just to add to Maverick's comments, this marketing piece is about equal weighting vice cap based weighting. It in fact specifically states that the effect is most probably based on cap effect, not random selection. Not to mention its not peer reviewed nor does it give any info needed to check the strength of the effect, like p value (you didn't realize it but you pointed out the need for a p value with your "99%" of the time comment, which was not supported, and would in fact be shocking to see). Nor does it rule out data snooping, for example does this hold for 45 stocks, 65, or did they just run it with a bunch of sizes until they got the most striking result and publish that? Your level of trust in someone because of their title is also striking. Most likely this was ginned up to meet the authors goals, which obviously didn't extend to impressing anyone with more than a passing familiarity with stats.