The Interesting Times: Wake The F Up

Steve Jobs on Hiring and Leadership

A short 2-minute clip with Steve Jobs explaining the hiring process they used for the creators of the original Macintosh computer. Worth a watch.

When you get a great group of ten great people, it becomes self-policing who they let into that group. So I consider the most important part of my job recruiting.

Return Stacking
Corey Hoffstein

My experience is that most investors tend to be hyper-focused on returns.

Investors tend to pick a return target and then construct a portfolio to achieve it. The thought process tends to be something along the lines of “well, I am young and can take more risk so I’d like to earn a higher return than average (let’s say 12% per annum).” The investor then goes out to identify what investments they think will achieve that outcome.

What often gets overlooked is the concept of risk. I think one of the important concepts that most non-professional investors would benefit from understanding would be really grokking the idea of risk-adjusted returns.

If I fly to Vegas and bet everything I own on a spin of the roulette wheel and win then my return was very good. This does not make it a good investment - I incurred a great deal of risk in making that bet.

Perhaps this sounds obvious, but it isn’t widely appreciated. In practice, one way to achieve this is through what this paper calls “return stacking” - using modest amounts of leverage to get a more diversified portfolio to achieve higher return targets while reducing the overall risk of the portfolio.

The very core of Modern Portfolio Theory (MPT) states that investors should allocate to the portfolio that maximizes expected excess return per unit of risk. If this portfolio will not meet target returns, an investor should access geared exposure to this most efficient portfolio.

For example, an investor who borrows 50% against the value of their investments and uses the proceeds to allocate 150 percent to the 60/40 portfolio, would expect to earn materially higher returns than an investor in the 100 percent equity portfolio, with a similar amount of risk. In fact, a 150 percent allocation to the 60/40 portfolio substantially out-performed a 100 percent equity portfolio on both absolute and risk-adjusted terms, in backtested (1923 to 1961) and out-of-sample (1996 to 20212) time periods.

BITFD & Wake The F Up With Ben Hunt of Epsilon Theory
RCM Alternatives

A great interview with Ben Hunt, founder of the excellent finance blog Epsilon Theory. I resonated with these two experiences.

Those two events [caused me to lose faith in the system], right:

The temporary liquidity guarantee program where the full faith and credit of the United States government was behind Goldman Sachs debt, right?

And Jeffrey Epstein dying. It's like these kind of moments in your life, right? Where the skin is kind of ripped off to show the naked sinews of power below it. And anyway, that tends to create a little, you know, burn it the fuck down anger.

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