24 Comments

Interesting idea for an article! :D

I've been saying for a while now but drawdown control is important and it pays to think about how to reduce drawdowns to maximise your risk-adjusted returns.

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author

Thank you, and well said.

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Recommended. Keep up the good work!

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Jun 21, 2023Liked by Conor Mac

Great article, but probably isn't so much applicable to a middle age young retiree with a modest portfolio where short term tends to more of a factor than long term goals.

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author

That’s true, can’t appeal to everyone, all the time. Glad you still enjoyed it though. I’m writing something that may be more interesting to you at the moment.

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This is a masterpiece 👍

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Thank you 🙏🏼

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Jun 19, 2023Liked by Conor Mac

very interesting piece. two things i thought are interesting:

1) for the LO god portfolio, if we exclude the Great Depression years, max drawdown improves quite a bit

2) maybe im misunderstanding the setup of god's HF portfolio, but if one is able to foresee the future, and always be longing the top decile performers and shorting the bottom decile performers, how is it possible for this portfolio to lose money, let alone -40% drawdown? essentially isnt this the "perfect" market neutral portfolio, in which the long book by definition always outperforms the short book, hence always generate a positive return?

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Good points here. Some clarification. He picks the top decline stocks, then rotates once every five years. So he isn't constantly rotating into the highest conceivable alpha. My comment was that his process was "perfect" within the bounds/limitations of the study's mandate.

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Jun 15, 2023Liked by Conor Mac

Good one. You should also check out AA's pieces on combining value with momentum if you haven't already. Great pic, dall-e?

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Do you have any links?

I used Midjourney for the picture :)

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Jun 16, 2023·edited Jun 16, 2023Liked by Conor Mac
author

This is great thank you! I have read some of the old AQR stuff, but not these ones, so this will keep me busy

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Jun 18, 2023Liked by Conor Mac

You're welcome! Regarding AQR I would also recommend "20 for Twenty - Selected Papers from AQR Capital Management"

https://aqr.com/-/media/AQR/documents/insights/books/20-for-Twenty.pdf

Paul

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author

This is great stuff 🙏🏼

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The hero we needed!

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author

✊🏼

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Great article! Interesting lesson!

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author

Thank you!

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Jun 13, 2023Liked by Conor Mac

After a bad year he would rely on his AI and name it Connie and she would then blind him with science. :-)

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Great piece. Every investor should read it. Digest it. Embody it.

Small aside: did you mean to write “top-decline” performers or “top-decile”? I wasn’t sure.

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author

Thanks James, appreciate that.

As far as the typo is concerned, I have now rectified and updated it, thanks for flagging!

Conor

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If God were a HF manager he would ban them from the Gates of Heaven & provide them w/ a - way ticket to Hell.

The shelf life if the average HF relative to their fee intake has been nothing short of free money without accountability only to see them start up under another name.

Could go on but - my message is pretty clear. The average investor has been better off in a standard index fund tracking performance for marginal fees over time.

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I appreciate the comment and the tend to agree that retail investors would be better off sticking to indexing and trying to master discipline than investing in hedge funds.

To be clear, this was more so a study of how God would be treated as a HF manager, with the perfect portfolio, and the irony that he may well end up being "fired" because of loss aversion during the downturns.

Thanks Bob

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