![]() ![]() John locke the thinking rock how to#There’s mathematical equations you can use to figure out how to size bets like these, but rarely do professionals or gamblers alike do that. It’s not just about POSEV situations but also bankroll management and risk mitigation via volatility reduction. John locke the thinking rock professional#Having been a professional gambler in my university days (only with edges!) I’ve witnessed people through out the years, taking insane $ bets for small edges, I guess if their bankroll is enough, it’s fine but else, it’s eventually a bust. Given enough trials, all participants will go bust. Here’s another example, if you flip a coin and heads you gain 50% of your worth and tails you lose 40% of your worth, most professional gamblers would all agree that you’ve got POSEV of 5% and it’s a great bet. On paper, it’s -2k worse but geometrically it’s better. ![]() Having that 10k drawdown and having to recover from that drawdown is more of a cost than paying 12k to insure the 20 ships. If so, then having less cash draw down allows for better compounding in the number of ships he can send. A paradox! But it has one assumption, that the merchant is actioning his money to increase business. It’s a win win for both the merchant and the insurance company. The stable cost of $600 per sailing and not having that 10k draw down actually generates more $ over time. But it isn’t when looked at geometrically. Seems like a bad bet right? $12k is more than the 10k they’d lose every 20x on average. They determined that 1/20 ships would sink and they’d lose 10k (just an example) but had been offered insurance at the price of $600 per ship. I am not living my semi-retired life I was on the path to living a few years back but I love what I do so it’s not work.Īs I always harp on about my focus being on risk reduction as a way to increase geometric returns, it’s really taking in the point of ergodicity vs non-ergodicity and an example I really liked that Spitznagel used in his book (safe haven) was that of a merchant company who had ships going back and forth in Europe which were prone to pirate attacks. It’s opening up a lot of pathways and keeping me to task. It’s been an interesting experience and I’m loving that our results are published and audited. As it grows, so does the need for very robust systems, checklists and daily verifications of models/trades. At first, I thought it was a lot of pressure especially given short term swings/dynamics, but I am quite used to it now. I don’t even have access to the bank account. Literally have 10+ people reviewing our trade logs for accounting/oversight. The fund setup was as legit as you could setup and was pretty interesting, it requires 2 independent directors as oversight, a 3rd party fund administration company, that has access to the platform back-end and reviews all trade logs daily, an auditor (Grant Thornton) and loads of administrative tasks by the government. All in all, couldn’t ask for anything more. I had about 2 years before that with personal trading, so I now have 4 years out of sample matching the available back-testing. ![]() An average of 40% a year which matches the arithmetic backtests we’ve done. We officially Just finished the first two years for the fund which did awesome. The expectation based on models is that Peak will end up around 25% for H1 2022. The good news is that this quarter (Q2) is almost up the same as Q1 and it’s only 18 days in. Interestingly, the account would have published >20% result if the market closed anywhere near 4350 or below but alas, we had a bullish run into EOQ. Some learning nuggets in there but mostly nothing we didn’t already know. Now some caveats there, when we have a large market event like this quarter, we often pause new entries of OTM trades, allow convexity to play out in our tail structures and move to more defined risk structures like ATM trades but only until we get an all clear, this is usually days to weeks max. The systematic account did beat the discretionary account. The EDF account I purposely left on as totally systematic and had traded the IB account more discretionary. I have two accounts (EDF w/ a seat in Chicago to trade futures) and IB. ![]() Finished the quarter at 8.5% which was a good look given the S&P was down about 5% but I felt like things could have been managed better especially the initial response and the adjustment to the huge bearish rallies we had. ![]()
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