We Had The Same Crazy Idea

“Not everyone can become a great artist, but a great artist can come from anywhere.” Anton Ego,

Want to continue reading this and the other 1,500+ essays you won't find anywhere else?

Already a subscriber? log in here

To learn more about Epsilon Theory and be notified when we release new content sign up here. You’ll receive an email every week and your information will never be shared with anyone else.


  1. It doesn’t work for all the detailed reasons you note and for this: it’s really no different than picking investments, it’s hard to choose only the good ones, period (or from a “best of” list). Or, as one of my first bosses on a trading desk said: “the best strategy is to only buy the ones that go up and sell the ones that go down, it’s just hard to do.” It has a Yogi Berra insight to it - as did so many things pre-digital-age trading veterans said.

    And a variation on the theme is to only go with your own best ideas. When I was working on trading desks, I always felt that if I could trade less and hold back for my better trading ideas, I’d be a better trader / investor. Now that I work for myself, I can report that it works for trading ideas - as long as I practice the discipline of waiting for the few times a year that I have a truly high-conviction trade idea (yup, that’s how many really good timing trade ideas I get a year). And as to investment ideas - I have found no benefit to trying to leverage my own “best of” ideas as, like everyone else, my alpha has come from some of my smallest positions.

  2. Risk parity strategy…It’s not trying to predict what’s next. It’s not trying to create “alpha”. It’s trying to keep you in the game while also trying to keep you from being carried out. —Ben Hunt

    The purpose of risk management is not to contemplate and ponder. It is to model risk by anticipating future unwanted events, to assess their likelihood and severity, and to make good decisions about their avoidance, mitigation, transfer or retention.

    Bill Belicheck/Munger Risk Analysis narrative…

    Other Thoughts….Don’t believe your thoughts. The voice in your head sounds like your voice but that doesn’t make it yours. Trust your inquisitive nature and question things., people and choices, especially if they feel off. Most people fake it, most of the time. Remember what your inner compass feels like. Use that feeling.

    The universe is deterministic. But I can affect the zeitgeist, at least a tiny bit…The Money Illusion

  3. Thankfully, I am not a manager of other people’s ‘money’. That’s why I would never seriously look at someone elses results and compare. I’m not smart enough in $$ to understand Graham and Dodd , or Swensen, or Druck, or any of the A-listers who, like hot golfers, have recent results on their side. I just want to pick a few equity winners (10 or more baggers) out of a smallish group so that my longish term net annual gain after inflation is 3-5% without feeling like I’ve been a tool. At this point, I’m certain I’ve been a tool.

  4. I found this helpful in looking over my own portfolio as I’m often am trying to implement other investors best ideas. LOL. I’m starting to realize that not even great investors know which of their ideas will be home runs.

  5. Avatar for rguinn rguinn says:

    I’ve had very similar experiences myself, Mark!

  6. Avatar for rguinn rguinn says:

    Yep, I remember using this article (and another that I can’t locate at the moment) in my own arguments proposing such a portfolio in the past. Alas, realized experience post-2007 by investors was that (1) mutual funds are not remotely representative of active management more broadly, (2) survivorship bias is a hell of a drug, (3) quarterly rebalancing and information ends up being a damaging simplifying assumption out of sample, (4) the methodology described here is not robust to underlying capitalization biases that typify the confined universe they explored and (5) the 20 years leading up to 2007 could not have been a less representative in-sample period for our current experience.

  7. Avatar for rguinn rguinn says:

    It’s true. What I think is also true: it doesn’t make them less great!

  8. Avatar for rguinn rguinn says:

    You’re in good company, then. I don’t allow employees of Second Foundation Partners (the company that publishes Epsilon Theory) to trade individual stocks because I want us to be as unbiased as anyone is capable of being. I don’t allow myself to trade individual stocks because I’m terrible at it.

Continue the discussion at the Epsilon Theory Forum


Avatar for rguinn Avatar for Mkahn22 Avatar for wpeter41 Avatar for Victor_K Avatar for u3sandifer Avatar for pascale4554

The Latest From Epsilon Theory


This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.