Author Topic: beating the market - not what it used to be  (Read 10496 times)

tombgrt

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Re: beating the market - not what it used to be
« Reply #80 on: May 14, 2018, 08:29:14 AM »
- Time horizon arbitrage: something like BAC in 2012 was a nice example: the thesis basically being: buy it, forget it, don't watch NBC, the storm will blow over in five years.
- Tax arbitrage: PFIC's are a bitch for US investors, maybe you can reclaim dividend taxes in some situations, get tax credits, etc. Research your tax situation and make the best of it. For me personally, Sapec was a great example. KMG was a nice example this year.
- Boredom arbitrage: somewhat related: basically buying cheap stuff without a catalyst: PD-RX was a nice example.
- Liquidity arbitrage: as a small fish it's relatively easy to boost returns if you can do a few good trades, i.e. put some lowball bids in several cheap stocks or try buying a microcap merger on the bid for a 20% IRR. CKTM was a great example this year.
- Gross stuff arbitrage: buying stuff that's so disgusting that no fund manager wants to own it. Chinese companies going private, Halal real estate in Dubai listed on the AIM exchange, microcap Canadian mining mergers, etc.
- Work harder and be smarter arbitrage: my least favorite option. Work harder and be smarter than other market participants.

I like this list. The only way to beat the market is to do things that other market participants are not doing. And the question then is why is it that market participants are not doing it. The above list provides a bunch of reasons:

1) Its gross
2) its boring
3) it takes too long
4) its too small

This list of reasons also extends to other areas of life  ;D

Agreed. Too many so called value investors don't dare to step away from large caps and/or North American borders. They refuse to invest in the temporarily ugly and dismissed stocks/markets. There are sectors and markets currently offering attractive bargains. They might hold slightly more risks, but they are often also potential multibaggers because everyone acts as if those risks have already played out. Investing in good, large and known US/CAN stocks isn't always an option if you want to outperform. 


rukawa

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Re: beating the market - not what it used to be
« Reply #81 on: May 14, 2018, 09:47:06 AM »
- Time horizon arbitrage: something like BAC in 2012 was a nice example: the thesis basically being: buy it, forget it, don't watch NBC, the storm will blow over in five years.
- Tax arbitrage: PFIC's are a bitch for US investors, maybe you can reclaim dividend taxes in some situations, get tax credits, etc. Research your tax situation and make the best of it. For me personally, Sapec was a great example. KMG was a nice example this year.
- Boredom arbitrage: somewhat related: basically buying cheap stuff without a catalyst: PD-RX was a nice example.
- Liquidity arbitrage: as a small fish it's relatively easy to boost returns if you can do a few good trades, i.e. put some lowball bids in several cheap stocks or try buying a microcap merger on the bid for a 20% IRR. CKTM was a great example this year.
- Gross stuff arbitrage: buying stuff that's so disgusting that no fund manager wants to own it. Chinese companies going private, Halal real estate in Dubai listed on the AIM exchange, microcap Canadian mining mergers, etc.
- Work harder and be smarter arbitrage: my least favorite option. Work harder and be smarter than other market participants.

I like this list. The only way to beat the market is to do things that other market participants are not doing. And the question then is why is it that market participants are not doing it. The above list provides a bunch of reasons:

1) Its gross
2) its boring
3) it takes too long
4) its too small

This list of reasons also extends to other areas of life  ;D

BTW, writser, what broker do you use to buy stocks on AIM. IB, AFAIK doesn't have this capability

CorpRaider

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Re: beating the market - not what it used to be
« Reply #82 on: May 14, 2018, 10:04:17 AM »
Beating the Market -  Same as it Ever Was.

Midas79

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Re: beating the market - not what it used to be
« Reply #83 on: May 15, 2018, 01:33:46 PM »
I just can't resist, shameful as it may be.

1) Its gross
2) its boring
3) it takes too long
4) its too small

That's what she said!

Grant

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Re: beating the market - not what it used to be
« Reply #84 on: June 07, 2018, 08:17:13 AM »
It really is remarkable how difficult it is to out-perform especially when you consider the virtually unlimited resources that some of these firms employ.

Suppose you're a small fund generating a lot of alpha. What happens? You attract more investor money. Because you invested your original capital the best you could, this additional money must be invested in less promising ways - i.e. the law of diminishing returns. As long as you generate alpha, you continue to attract more money which lowers your alpha.

This is why big hedge funds with unlimited resources have trouble beating ETFs. Just because it's hard for them doesn't mean it should be hard for you.

This said, I usually advise people to stick to ETFs except where they have specialized knowledge the market is unlikely to price in.

That's kind of the big muscle movement of capitalism, isn't it?  Excess returns get pushed toward the average by the allocation of capital.  Should apply to industries, markets, and investment styles and/or funds.  I agree with OP that the average investment dollar must underperform the index materially after taxes and costs are included.
I see no reason it should apply to individual investors, because individual investors don't run funds and don't usually attract more capital when they generate alpha. Also, market knowledge isn't homogeneous, so there's no reason adding additional investors to the market must obey the law of diminishing returns.

KJP

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Re: beating the market - not what it used to be
« Reply #85 on: June 07, 2018, 03:29:49 PM »
Fidelity supports trading on AIM.

alwaysdrawing

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Re: beating the market - not what it used to be
« Reply #86 on: June 12, 2018, 04:21:06 PM »
Fidelity supports trading on AIM.

Fidelity is quietly just easier and nicer for most investors than Interactive Brokers.  International trading (including AIM) is just one plus.

I wouldn't say I have complete knowledge on outperformance, however I would focus on these things:

1. Concentration.  This is the easiest way to have out-performance or under-performance, simply because it reduces correlation with the index.  Also helps because it's very hard for most people to follow a dozen stocks with any type of thoroughness (to say nothing of people with 20+ positions, who basically tie an anchor to their performance.  If you have a 5% position double, it's still just a 5% portfolio gain.)  I'd shoot for the Buffett goal of 80% across 5 companies, with the remainder in more asymmetric type bets that can still meaningfully impact performance.

2. Focus on small stuff with less eyes on it.  Just less competition from serious, professional analysts on small caps and random stuff.  Spinoffs, SPAC warrants, IPOs, International, arbitrage of various forms, distressed debt, etc.

3. Forced sellers.  Anything where someone has to sell based on non-economic reasons creates opportunity.

I would guess most people here don't have the makeup to make high conviction concentrated bets, and thus they will never significantly outperform.  I'd bet it's 50/50 that a dart thrower could beat anyone who has max position sizes of 5%....I just don't think it's common for anyone to have 20 ideas that outperform.  The winners (of which there will be some) will be hurt by the losers (of which there will be some), and it will take forever to determine if the person has any skill, especially if he or she trims stakes down if they win.