The flaw is that Navlio is basing the recommendations on long equity positions (as well as other securities reported in HFs' 13F filings). But hedge funds hedge their bets -- hence the name -- by placing more complicated bets than just buying long, and that includes short sales. You don't have to report short sales in a 13F.
If you don't know both sides of HFs' bets, you actually have no idea how they feel about a company. They could have a big long position and a bigger short that's not reported.
It's central to a hedge fund's business to conceal the kind of bets they are making, and what they plan to do, until the precise moment that it benefits them for the rest of the market to pile in.
Thanks for this feedback--
It's very accurate that 13Fs do not pick up hedge fund activity such as short sales and derivatives. 13Fs are not necessarily comprehensive of all of a single hedge fund's positions as certain funds sometimes make amendments at a much later date.
Hedge funds, particularly activist funds, do sometimes try to conceal the stocks they buy - usually by using derivatives which have different disclosure requirements. However, it is pretty rare for a hedge fund to be long and short the same stock unless they are doing it for tax reasons - this does not happen often. Going long a stock to create confusion about a short position (which is not disclosed) does not happen in the wild.
We believe that "knowing" in the aggregate just the stocks that managers are long has value. It is noteworthy that equity long/short strategies take a few quarters to materialize so using quarterly data is still valuable (hence we have excluded hedge funds that follow a short term statistical arbitrage strategy with many positions and very high turnover).
I think there is value in what you are doing, as long as everyone knows what context to put the information in, and realizes that they may lack significant additional information. In the wild, HFs are actively engaged in sending misinformation to the market in a number of ways, by running different sides of a trade through different prime brokers, etc. I have no doubt that some of them are sending information via their 13Fs that is meant to be misinterpreted.
I am not sure why your post is being ignored. Having half the information that is biased in an unknown direction and not randomly selected is worse than having no information. If you have no information at all you will just guess and be right half the time (after accounting for risk/return), while if you have biased information you just get to be on the other side of an informed trade (ie be the sucker).
Technically, having biased information can't be worse than having no information (i.e. you can choose to ignore it if you know it is biased and you can try figuring out how and in what direction it is biased).
What's worse in this scenario is not the information itself, but incorrectly assuming the information is unbiased.
Only if you know the direction it is biased. If you don’t know this then you are just a sucker in someone else game.
Imagine a coin tossing game where I know the result of a toss and you don’t, but where I can set the size of the bets. Every time you choose correctly I set the bet low and every time you choose incorrectly I set the bet high. It won’t take me long to completely fleece you despite the odds of you and me being right being 50/50 each time.
This is a simple analogy of betting against a hedge fund when you only have access to biased information of their strategy and they know this and can use it to induce you to bet high on a losing bet.
Diclosure: I work at a company https://www.tipranks.com and we collect all sorts of hedge fund, analyst, blogger and insider data.
I don't understand how any of the suggestions it gave me works and that worries me. It's very discomforting when a site tells you what stocks to pick.
It's important that sites stay technological and give you information rather than actually promise alpha over the market. I don't think you'd have to be a genius to know that anyone telling you what to buy (rather than give you information you can process yourself) and can actually generate you alpha could just use their money instead of taking yours.
Navlio does not use proprietary methods to rate stocks or promise outperformance. Rather it is a navigation tool to make publicly available hedge fund data more accessible. Whether you believe that using this subset of hedge fund data can help you invest better or not is up to you. But at the least it has the potential to give you a sense of what professionals are doing in and around the stocks you are looking at.
I completely agree on the importance of providing supporting evidence. To test out this site, I looked into Micron and Greenlight Capital, because the founder, David Einhorn, has very publicly embraced this stock. Under Greenlight, Micron wasn't listened as a recommendation, and, under Micron, Greenlight was listed as "Hold." I'll admit that I don't follow these things too closely, but it sure seems like Greenlight is very bullish on Micron (or else they would presumably be selling off their position).
This is, of course, one position for one hedge fund. But, without supporting evidence for listing Micron as a "Hold" for Greenlight instead of "Buy", I'm not inclined to trust Navlio for other recommendations.
By way of contrast I work for a financial company who provide research and recommendations to wall street and whose main 'unique point of difference' is that we don't take positions ourselves.
The downside of the idea "you can believe someone who back themselves enough to put their own money in" is that your recommendations are then, of course, not truly independent or unbiased.
Most big sell side broker dealers claim there is a chinese wall between their research analysts and their actual trading arm, but sometimes that chinese wall can be suprisingly thin. For example, when a merger is in the early offings, or other large deals about to happen, 'the street' can just go quiet on the subject. Only the (very few) truly independent research firms are still talking at that point.
Having previously been close to non-financial journalism it was a bit of a shock to me when I first realised how little truly independent (in the sense of not trading on their own opinion) news or research there was. But, I now understand why that is.
The optimum situation is probably to have a mix of approaches.
For anyone who comes into this thread looking for long-term stock advice: put your money in some ETF (like vanguard) and call it a day. Look at previous rates of return if you're nervous (though past performance can't predict the future), and the return on the overall market over the years (it's ~+7%), and let compound interest do the rest.
I think it's wise for everybody to allocate some funds for high-risk crazy investment in smaller companies, just 5-10%, as long as it's not a straightout scam that is. First, you learn a lot from your research and interactions. Second it is diversification. Third, you can put the money towards something you care about so even if you lose them it's not a big deal such as VR, cancer cure, some cool boat technology, new food, whatever.
Vanguard's VTSAX is an ETF that buys the whole Stock market (more or less, at least a representative portion). By definition that includes smaller high risk companies.
Slight correction: VTSAX is a mutual fund; VTI is the corresponding ETF.
I agree that it's an excellent choice though -- easy diversification, very low expenses, low turnover. VT (which includes foreign stocks) is also worth considering for extra diversification.
Great point. I group VTI, VTSAX, and VTSMX all together in my head; with Vanguard the differences between Vanguard branded ETFs and MFs aren't really that noticeable if you're just buying and holding. Thanks for clarifying my suggestion, though!
Comparing Renaissance to any other firm is like comparing Berkshire-Hathaway to an average value-investment fund, or PIMCO to any other fixed income trading firm. James Simons (founder of Renaissance) was so smart he _co-founded a field of mathematics [differential co-homology] with Chern. Not only does the fund have a huge head-start (they were purely algorithmic trading in the 80s), but their commitment to academic pursuit over monetary gain is unparalleled. I.e., when asked who an ideal hire was for Renaissance, Simons said "anyone who has a PhD [in the applied or pure sciences, statistics, mathematics]" (you get a PhD because you love the field, you go to HBS or Wharton to make money).
These guys are trained professionals who've dedicated literally decades to graduate level pure & applied mathematics, and are simply of another a caliber. I can read JAMA all I want, quite fun indeed, but if I practice surgery, I'm certainly going to slice an artery. You have a better chance of going to Atlantic City and putting 100k on black than successfully making money in trading any set of securities, whether its Asian fixed-income, blue chip Wall Street equities, or CME pork belly futures. Just because you back-tested something successfully doesn't mean you should throw your hat into the ring, the sharks will bite till there's nothing left.
If you fuck up a computer, short of messing with BIOS voltage configurations, you can reset at no cost. It's near costless to make mistakes most of the time.
With finance, high voltage electronics, and explosive chemistry, you can have very high cost consequences if you screw up. And people often delude themselves in finance.
There is a also a return aspect in finance. You need a large amount of starting capital until 80hrs/wk of work will outpace what you make 80hrs/wk in your job.
For example, lets say you make $250k/yr as a smart engineer. We assume best case scenarios and say you make %10/APR (very generous) over the index fund return. You would need $2.5million in starting capital before you can start matching your working self in returns. Most people don't have $2.5 million lying around. You would get better returns starting a business or investing in yourself and leaving your savings into index funds.
Once again I'm not asking for someone to explain the pros and cons of investing. Why do you insist on answering a different question?
Maybe I don't want to invest but simply want to understand how math is used to make trades without human decision making involved once the algorithms are written.
It takes more than a little math. I hang out in stock market chats that have a lot of programmer trying to do just this, and this comic is completely accurate: http://xkcd.com/1570
edit: I didn't mean for this to be disparaging remark: I am genuinely impressed by how wise he is about so many topics, given that he is only 30 years old.
I love the story of LTCM. It was pure mathematical hubris, but it was also amazing what they accomplished before they crashed. I mean 40% returns year over year for nearly 3 years wasn't just luck.
The crazy thing about LTCM, and the thing that everybody overlooks is that LTCM didn't die by bankruptcy...they died because of the systemic risk of their portfolio size and the subsequent intervention from the federal reserve. They had $100B under management, but only lost $5B in 4 months. It was a major catastrophe, sure, but it was only major because of the implications from its absolute size. A 5% drop in 4 months is something that can be recovered from on a personal portfolio level or even a small hedge fund level...but at LTCM's size it was endangering the financial system as a whole because it was threatening to bankrupt overleveraged institutional investors.
Jane Street Capital, while very opaque about what they do, has given me enough room to believe that LTCM has inspired a lot of their strategy. This always makes others perceive me as a quack that doesn't like history, but if another LTCM came around that was using the same strategy but on a much smaller scale and with a well spelled-out liquidation strategy, I would invest. In fact, I would probably bet big on it (>50% of my portfolio).
Nobody is gonna touch it though, because everybody is so conservative in finance. "We're gonna follow LTCM's strategy" isn't a sales pitch, it's a punch line. But outside of finance, there is a ton of precedent for monumental successes with an idea that has failed before. And I think LTCM is one of those ideas.
The math people (Merton, Scholes) saw the craziness, pulled enough of their money out in time, and didn't lose it. The finance people (first and foremost Merriwether) were those who believed they are smarted than everyone and went bankrupt.
I didn't say they understood the math they were using and lost it, I said they used math and lost it. Obviously if you always understand what is going on, you'll never find yourself up shit creek without a paddle.
And I ask again, since you linked to this book - did you read it? Or was it just "these guys failed, and they started out by using math, so ..." statement?
They did not use math at the time they lost money. They were were essentially gambling (doing "risk arbitrage", which is all risk and no arbitrage).
The bail out that underpinned the financial crisis; "calling all funds everywhere : we will cover your stupid mess, you cannot, will not lose." This, and flogging all the gold are the reasons to blame Gordon Brown for the current mess the UK's in.
Yeah I don't think I agree with this. ETFs still net you quite a bit over a regular CD (or storing your money in your mattress), and are considered relatively predictable/safe
"The answer I give them is that our markets are not rigged but are run/controlled/dominated by the flash boys/HFTs/machines that do not have the ability to think rationally but just trade on their algos and as a result you get absolute mayhem on days like today."
Maybe it's a bit off-topic, but am I the only one who has no idea what ETF nor Vanguard are? I found the webpage for Vanguard, and they apparently want me to call them if I'm new to the system. I also have no idea what investment funds, stock exchanges and commodities are.
Whenever it comes to investing advice, I understand how my family must feel when their computers break.
Vanguard is the company founded by Jack Bogle, one of the first, and arguably the biggest, proponents of a method of investing called index investing. The goal is to match the aggregate performance of the market while paying the least amount of fees. Vanguard has a large selection of mutual funds[1] that match various stock market indexes[2].
Generally a mutual fund's value (called it's Net Asset Value or NAV) is calculated once at the end of each trading day. When you put money into a mutual fund, you buy at that price. An ETF[3] is a special type of mutual fund that is itself listed on a stock exchange. When you buy an ETF you're still buying a share of the underlying mutual fund, but the price changes throughout the trading day. The difference between the price you pay and the NAV of the underlying fund is called the premium (if you pay more than NAV) or discount (if you pay less).
You don't have to call Vanguard if you want to open an individual, joint, or retirement account in the United States. You just go to their Open An Account page[4] and select which account you want to start.
[1]: a company organized to aggregate many people's money and invest it in a particular way
[2]: a list of companies that share some quality. For example, the "S&P 500" is a list of the 500 biggest publicly-traded companies in the United States.
Don't worry, it's perfectly fine to not know what these things are.
Maybe you haven't been working for long enough (or at the right companies) but I think people usually pick up an interest for this kind of stuff when they want to know what to do with RSU (Restricted Stock Units) or Options that they've gotten from a job. Some also get interested by the idea of having your money work for you (to make more money), instead of just spending money on things that don't bring return.
Is it warranted to feel a little uneasy about the dogmatic advice of "just put all your money in ETFs?" Aren't assumptions that something will always have a fair return the way bubbles are formed?
People don't put money into ETFs to get speculative returns, but better-than-bank-account returns with diversification. Bubbles are often formed by speculation, and usually in a singular asset class.
We already and always live at the limits. Innovation is pushing those limits further everyday. For example, Internet solved lots of limits related to physical locations, distances, and land areas, electric cars and sustained energy production will solve limited oil supplies, space exploration and asteroid mining will solve limited resources of other materials (if they aren't made irrelevant before that by other innovations). Etc..
You can do better if you add bonds and perhaps international stocks and rebalance your portfolio yearly. Maybe 50% US market ETF, 20% world, 30% bonds. Bonds aren't very appealing right now though but as a general rule.
If you're only in a US market ETF there's some non-neglible chance you'll be flat or down in 10 years esp. if you're unlucky enough to buy close to a bubble top. So long term in this context should read as > ~20 years.
Bonds would include long term bonds, and they literally cannot get any higher in price. Rates are zero, long term rate expectations are zero for a while. This is horrible advice. The only way to go is down.
First thing, never say never. They could still get higher in price. I agree it's less likely then the other direction so for today you'd want to have less bonds in your portfolio. Over the long term however, which is what we're talking about, a mixed portfolio beats 100% stocks with less volatility.
EDIT: If you look at buying a 10 year bond right now you get ~2.2% interest per year guaranteed today. If you buy the total US stock index it's hard to tell with any degree of certainty given today's high P/E ratios that the stock market will beat that. It might. But it's more risky. Hence there's a premium you're paying for risk. It's true that yields are likely (but not certain) to go up and so over time your new investments + rebalancing will buy you into those higher yields. Otherwise you're just trying to time the bond and stock markets which isn't simple, you can play a little of timing game (e.g. saying you think stocks are cheap and bonds are expensive today) but you can't usually predict better than the market already does.
Another important thing to keep in mind is that as yields go up stocks also go through a repricing, not just bonds. The interest rate is the measuring tape for all investments, if you can get a safe high return in bonds you don't go into stocks. If dividend yields are lower than bond yields you don't buy dividend stocks that are subject to other risks...
EDIT: And while we're talking about this it helps to recall that there's a continuum that goes beyond 100% stocks. If you're so sure interest rates are going up and stocks are going up then you can borrow money at today's rates and invest it in stocks. I.e. use leverage. If you're right your returns will be much higher...
I just buy a few companies I like, hold forever, collect the dividends, avoid paying any management fees except for the fifteen-odd-bucks that I pay for every purchase.
Will I make more or less than I would under your strategy? I don't know, but averaged over all possible universes it's unlikely to be significantly less, and this way I at least get the fun of being in control, and deciding where to put each new chunk of money.
That $15/purchase is probably waaaay more than the equivalent amount of Vanguard fees, unless you're buying thousands of dollars in stocks at a time. And those fees add up to a significant amount over the lifetime of your portfolio.
Speaking of your portfolio, if you're investing in "a few" companies, your volatility and risk are going to be enormous. Especially if you're not balancing your portfolio between industries, company sizes, and less risky investments. Automatic rebalancing is a fantastic way to obey "buy low, sell high", as you intrinsically buy more of cheaper instruments and less of expensive ones to maintain that balancing.
Oh also, as a follow up -- some friends of mine have been really impressed with/interested in LendingClub (https://www.lendingclub.com/) -- personal loans, and they're distributed so not one person takes all the risk (so you don't put up the full amount, it's divied up)
Ooookay, I put a chunk of money into LendingClub, and here's what I learned:
- Remember that the money that you make on this is taxed as income, which stinks for high income individuals
- The alternative is to set up a lendingclub IRA and put money in there, but now you're somewhat limited as to how much you can invest, as well as being ineligible if you've got an employer retirement vehicle like a 401k
- The return is very high at the beginning, and then tends to drop as more and more people default (or pay off early, which can be almost as bad from an investment perspective)
- It takes work - it's interesting if you have the time and inclination to pick out the notes you want, or they have an automated system - I did a bit of both
In the end, I'm making about 6.5% a year on it - not terrible, but at tax time every year it sucks when I'm getting charged state and federal income taxes on that 6.5%.
I think it makes a lot of sense for folks who are not concerned about reducing their taxable income and want a more active investment option than just vanguard ETFs, or who want an IRA option with higher returns. But it's not as awesome as it seems at first glance.
I would add that this depends on your time horizon. If you did this in 2008 for example, it would have been a couple of years until you're above water again.
There is always an aspect of market timing, even with ETFs. Looking at the massive bull run in the last 5 years, it certainly makes me nervous to enter the market right now, especially with the recent volatility.
Put money into vanguard total market etf as a function of your age. As you get older, put less. Or, rather, put money into etf with lower risk as you get older. Same thing with startups. As you get older, work in jobs with less risk. Well, that is if you are optimizing for return. If you don't mind being poor, go crazy.
I used to agree with this strategy before I got an MBA. Then I studied the markets. Actually the MBA put me at a disadvantage, but regardless. The markets are so incredible corrupt.
It's nice in theory, however this ETF strategy is extremely overcrowded, hence the 2008 meltdown. Hence, the August meltdown. Anything that works will eventually, come to an end... Let's not forget the people that make the guaranteed money in the ETF are the one's selling you them. (Might want to check your ETF fees as well)
I'm not sure what the demographic is that comes to HackerNews, but anytime there is an investment article, I'm always shocked, because people some how become the authority of investing. Yet I don't think many financial people come to the site.
Someone hears that Warren Buffet speak on CNBC, that you should invest in an index strategy. So let it be written, so let be bought. This keeps people warm at night, because Uncle Warren said something that you can understand.
Anybody that is critical of your buy an ETF strategy, is the enemy. But yet you reference a one line strategy and now you are genius! Where was your ETF strategy in 2008? Negative -36% return? How about early 2000? It would still be in the crapper hadn't Uncle Ben started printing money in 2009. But hey, you don't need to understand anything about interest rates, money supply, high frequency trading and or federal reserve, because at the end of the day you saw something on CNBC!
I'm more than happy to encourage buy more of your investment philosophy. Keep buying, buy the dip, buy when it goes up, buy when it goes down. Because the market is up ~250% since 2009 and it can only go up. Economic cycles those are a thing of the past, the market is only going to trend up, no inflation or deflation in sight. It's now clear you know what you doing! Your incredibly intelligent, successful, profitable, secret strategy. Remember not tell anyone, well because they might overcrowd the trade and reduce profitability.
>> Anything that works will eventually, come to an end... Let's not forget the people that make the guaranteed money in the ETF are the one's selling you them.
I'm not exactly sure what your getting at but in reference to it all comes to an end. Yes, ETFs are overcrowded and even Goldman wants a piece, so now you know it's corrupt. :)
I know this is such a cliche question but if you've found the recipe for generating 9% returns, why are you selling it for $50 dollars a user rather than just starting your small/mid-cap fund? Capital is so cheap right now, people literally don't know what to do with the money they're sitting on. Even if the fed hikes in Sept (which it will), you charge .5% maintenance and 20% performance and you'll have absolutely no trouble raising money.
(This is a genuine question, not a snarky one. I've always wondered would write a "how to get rich quick" book in my early teenage years, only to realize their methodology to get rich was to write that get rich book.)
Yes, I'm working on selling it / building a portfolio to sell to investors. Unfortunately, I have a day job and fortunately, I have new 8th month old. (means time is short)
Nonsense. The GP specifically recommended Vanguard ETFs, which are structured in a way that keeps the fees low and prevents anybody from becoming rich off the investors.
> For a $49.99 a month, you can have a return of 71.78%.
That's a hell of a thing. If you can make those kinds of returns why do you even need to play in the $50/mo market? Seems like the kind of thing you can sell for millions, or not sell and make billions.
Before anyone critiques this site, I'd urge them to read the entire front page of their site. In particular:
Tell navlio the companies you like and it will apply machine learning to match your views with like minded fund managers and predict what else you might like and dislike.
They are not trying to pick stocks for you that they claim have high alpha, just use machine learning to match your "style" with money managers (presumably using data from mandatory reporting by money managers).
Is this going to raise the returns of the average site user? Probably not. Does it help people to do invest their money according to their own style or beliefs (wise or otherwise)? Yes, at least according to their claims. Is it a net gain for society or something that deserves attention? In my opinion, no, people should stick to the basics (i.e. index funds).
Cool project, have you tried backtesting your algorithm? You will probably get quite a bit of negativity if your plan is to make money off this by recommending stocks as is.
I would suggest trying to backtest with quantopian.com to start. If you are able to generate alpha (which it will tell you), you could try entering their monthly contests where they give you $100,000 to play with. Or you could just go talk to investors, up to you.
We ourselves used to track the number of "smart money" investors in biotech stocks like BLUE (bluebird bio) in Excel spreadsheets. The motivation for Navlio was to make this easier and more functional. Using BLUE as an example, the number of "smart money" investors increased from 2 to 10 before its stock price increased over 6x. We used Navlio to find other stocks like BLUE that hedge funds were buying and invested in some of those as well. If you want to actively buy stocks, this is a way to complement your research.
Blindly following hedge fund data is a sure fire way too lose money. A lot of these hedge funds are using more complicated strategies such as premium selling and hedging using S&P futures.
I like its ability to list stock symbols based on themes. As a long term investor who invests in specific industries, I have established fundamental and technical criterion I use to evaluate stocks and identify buy/sell times. But, I'm always on the look out for new stocks. Your "Theme" search is a useful feature in this regard.
Looks like ETFs like SPY, GLD, OIL etc doesn't work. The interface could be less jumping from page to page. I would prefer something more simpler and straight forward:
-Enter few symbols (including ETFs), for which you are interested
-show actual data you have for them (like who bough & sold)
How do you rank the list of stocks in the "smart money manager" results? Typically rankings for this type of search are done by percentage of portfolio, but that definitely does not appear to be the case here.
Nice work! It would be interesting to write a bot that tracks a portfolio based on the recommendations from this to see how it performs against other strategies.
If I want to start writing such algorithms, where should I start? No, I am gonna test with real money and hope to become to rich. I just want to learn for fun
Checking the HN guidelines... hmm. I understand not picking on someone who's just ported Linux to some micro that absolutely doesn't matter. And I understand being gentle with someone who's earnestly re-invented the wheel, badly.
But this is such a horrible idea I think it needs to be shot down and shut down. And I'm obviously not talking about anything related to the technology behind the site.
If you think for a half second that millions of dollars of Amazon instances aren't doing this, for real, and for better... then you shouldn't be in the market at all.
Seriously, did you read the description? It's just an "other people who like x, also like y" system, which I happen to think is pretty awesome. If anyone takes this site as investment advice, well, duh, don't. It isn't, and that's okay.
Seriously, have you ever had any recommendation engine produce useful information? Netflix can't do it for movies, Apple can't do it for Music, Twitter can't do it for information, and LinkedIn can't do for people or companies.
Taking this repeatedly-failed concept from consumer nonsense and applying it to financial products is just idiotic.
Moreover, it's OLD data. It's annoying enough when I buy a four pack of 9V batteries for my smoke detectors and Amazon tells me that other people bought C cells and Tickle Me Elmo. Gee thanks!
But this site is the equivalent of buying a winter jacket and having Amazon tell me that other people are buying swimsuits.
Bad site, bad idea -- and as, usual -- pandering, platitude financial advice at the top of a HN comments thread in a thread about real issues that affect real people.
Yahoo Finance had "related companies" 15 years ago and it's equally useful. Why does this site even exist? To get karma points? To get bought by some C-list online investment company to help them sell their unethical products?
Real hedge funds (and even casual nerd investors) have stuff that makes this look like the child's toy that it is. And every financial site has moved into "managed portfolios" for a reason. Fidelity, Schwab -- even Vanguard.
Or you could use this random blue site and hope their Ruby scripts didn't choke scraping the SEC website. Your money, your choice I guess.
The flaw is that Navlio is basing the recommendations on long equity positions (as well as other securities reported in HFs' 13F filings). But hedge funds hedge their bets -- hence the name -- by placing more complicated bets than just buying long, and that includes short sales. You don't have to report short sales in a 13F.
https://www.sec.gov/divisions/investment/13ffaq.htm
If you don't know both sides of HFs' bets, you actually have no idea how they feel about a company. They could have a big long position and a bigger short that's not reported.
It's central to a hedge fund's business to conceal the kind of bets they are making, and what they plan to do, until the precise moment that it benefits them for the rest of the market to pile in.