Retail Therapy

#investors

There are always a few good ideas on Long/Short Santa’s wish list to firm up your game. Today, let's take a closer look at the most popular item in the store, becoming a better stock picker.

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Long/Short Santa’s #1 Gift: Become a better stock picker.

There are lots of reasons to love this particular gift. Go ahead and choose what’s going on your holiday card.

A. You need more alpha.

The big trades don’t happen enough, and the small ones are not adding up. You put something on the sheets and stare at it. You want to believe that staring at it helps, but in fact, you should be doing some kind of research instead of staring. And yet, you stare. You get coffee, you do some talking to somebody on IB, maybe look at news or data, and you stare some more. You get bored, and you trade. You are not remotely probabilistic about the trade, but you feel an urgent need to do something because, well, you’ve been staring all morning. And the trade you want to happen isn't happening fast enough. Are you impatient, or just not regimented in your thinking? Why has something else (literally everything else) taken precedent over the thesis that put you into the trade initially?

There’s a decent chance your alpha may already be there, but you are not willing to play the right kind of trade to get it. One might posit that the ability to underwrite more duration in ideas could drive better results, but there is so much wariness around volatility and various factor exposure shifts that you over-trade to ensure the worst (i.e. a big draw) does not happen. This may be my favorite version of “blame the risk model” for no alpha, because at its core, there exists a kernel of truth. But then, why are some people generating alpha within the EXACT SAME FRAMEWORKS? Because there are larger elements of truth that may be holding you back: