Warren Buffet’s Worst Loss Came During the Dot-Com Bubble

August 18, 2017

Buffett suffered a 49% loss from Jun 1998 to Mar 2000. At the same time, the NASDAQ rose 140% and SP500 rose 28%. Despite heavy losses and public ridicule, Buffett stuck to his guns and wouldn’t touch internet stocks. Buffett’s ability to stay disciplined might be more admirable than his analytical skill.

At the time, I’m sure people were wondering if Buffett had lost his golden touch or if he would ever outperform the market again. A near 50% loss for a stocks investor during the biggest bull market in history doesn’t inspire confidence. But he had the last laugh after the bubble burst, gaining 80% over the next two years while the NASDAQ lost 72% and SP500 lost 28%.

https://medium.com/@mmelissinos/warren-buffetts-worst-loss-came-during-the-dot-com-bubble-546fb56a8f2e

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The Risks of Copying Others

August 15, 2017

As a copier, you cement your position of always following the crowd and competitors.

You forgo understanding how the product you’re copying actually works; the reasons behind it’s design; the problems it addresses; why it performs the way it does.

You blindly put your faith in the person or product you’re copying and, thus, give up your ability to develop and monitor expectations.

http://www.michaelmelissinos.com/blog/copying-skips-understanding/

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Half vs. Half-Assed Product

August 7, 2017

Reduce the rules in your investing strategy to make it more robust and easier to execute.

We all hear that simple is better; that complex doesn’t work as well and is harder to execute over the long run. Complex rules tend to promote confusion and second-guessing – things that can wreak havoc on any investing strategy.

Investors insist on making things too complicated. Many even believe that simple rules cannot make money over the long run; that the only way to win is be some kind of genius math whiz or have super-human intuition. No. No. And no. Simple and effective works.

http://www.michaelmelissinos.com/blog/a-half-vs-half-assed-product/

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Bill Belichick on Doing Your Job

August 1, 2017

When you take the road less traveled, you hear a lot of negative chatter from others and from yourself when you don’t perform well. But winners don’t give in or tell people what they want to hear; they stick to the process instead.

If you watched the Super Bowl, you saw two games — one where the Patriots sucked and one where they could do no wrong. The Patriots, unlike the Falcons, didn’t panic when the game wasn’t going their way. They stuck to their game plan and the rest is history. Bill Belichick (head coach of the Patriots) always says, “Do your job” and “Next play”. He focuses on process 24/7. Only the super committed can hear these soundbites, put their frustration aside and execute. 

http://www.michaelmelissinos.com/blog/the-search-for-trends-gets-lonely/

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Make a Big Kill Every Once in a While

July 24, 2017

Apex predators don’t succeed all that often. Tigers succeed only 5% of the time; Polar bears 10% and Leopards 14%. All they need is one big kill every once in a while to stay atop the food chain.

Tigers, lions and other predators know their game. They balance persistence and knowing when to quit; hunting only for the home-run and conserving energy.

Investing is no different. 

Trend traders lay low most of the time; expending little energy while waiting for a big trend to emerge. Most of the time, like lions and other predators, we come up empty. Frustration occurs, but it doesn’t distract us from the process. You keep at it and eventually you make a big kill.

https://medium.com/@mmelissinos/make-a-big-kill-every-once-in-a-while-d28757b3c0c1

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Cycles

July 17, 2017

Embrace cycles and use them to your advantage. Pretending they don’t exist and attempts to eliminate the part of the cycle you don’t like, the losing streak, doesn’t work.

The investing world doesn’t like cycles. It prefers investment strategies that produce consistent profits with little variation. I believe the collapse in interest rates intensifies this desire for consistent profits. One problem with investing in such strategies is that they’re likely curve-fit to the current market environment.

In the short-term, they can do no wrong; nailing the timing on every trade – buying bottoms and selling tops. The risk, though, hides somewhere in the future when market conditions inevitably change. As a result, the strategy no longer syncs up with the markets and performance comes off the tracks, often resulting in blowups.

http://www.michaelmelissinos.com/blog/cycles/

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Why I Choose Lean

July 12, 2017

Prioritize returns and educating investors. Have the ability to think and execute without distractions. Build rapport with current and prospective investors. Say what you have to say, not what you think others want to hear. Tell the truth no matter what.

I speak out about running a small and more importantly a lean operation in an industry where you’re not seen as “cool” unless you manage +$100M in assets and have a staff of PhD’s and MBA’s. I’m not opposed to managing a high level of assets, but only if it means I get to focus on trading, research and educating investors. If managing a lot of money means taking on the extra baggage of doing business with uninformed and unwilling-to-learn performance-chasing investors, having to tell people what they want to hear just to get and keep their accounts and spending more time with these people than my wife, family and friends then no thank you. Not interested.

I thought I’d address some of the reasons why I launched Melissinos Trading with the priority of generating solid returns and education instead of running a large and complex shop.

Blog post: http://www.michaelmelissinos.com/blog/why-i-choose-lean/

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AQR Paper on Trend Following

July 10, 2017

AQR updates their paper from a few years ago on Trend Following performance over the past 100+ years.

They highlight that performance since 2010 has been the worst stretch in the backtest. The main reason for this has been an increase in correlation between many different markets. When correlation increases, trend followers cannot follow and profit from many different trends.

Over the past eight years or so, correlation has increased severly. They notice that high correlation environments tend to hurt Trend Following performance and it thrives in low correlation environments.

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A Trend Reversal in Interest Rates?

July 6, 2017

Across the globe, bond prices are declining. From Australia to Europe to the USA, prices are sitting and/or rolling over towards 52-week lows. 

Could this be the beginning of a major reversal in interest rates? Who knows, but investors have to prepare just in case. 

Investors who have profited and gotten used to the 30-year bull market, especially in the U.S., might be less inclined to adapt. They think a bull market in Treasuries and other government bonds is the norm, so they don't bother closing their long positions. 

Trend Followers know better. They respect the market. They know that old regimes and long-standing trends can break down at any time without mercy. They don't bother feeling nostalgic. Instead, they adapt as soon as possible within the rules of their own strategies.

On this episode, I walk through the charts of some of the major government bond markets and comment on their current trends and some possibilities for the future.

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Performance Doesn’t Depend on Volatility

June 26, 2017

Great trends can exist despite low and declining volatility. People seem to have gotten the idea that trend following performance has been poor over the past couple of years because of low market volatility. Not true. Trend reversals and false breakouts are the culprits, not low volatility.

I don’t root for volatility. I root for trends. Sometimes markets trend despite low and declining volatility. They can exist with high and increasing volatility too, but positive trend following performance does not need high volatility.

Full article: http://www.michaelmelissinos.com/blog/positive-trend-following-performance-depends-on-persistent-trends-not-high-volatility/

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