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Myside Bias, as detailed by Professor Keith Stanovich in his wonderful book The Bias That Divides Us is a unique risk. It is uncorrelated with intelligence, as many other forms of bias are. This makes it a silent killer for investors.
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It is our belief that capital markets are becoming increasingly reflexive. They are more financialized, reflecting flows ahead of fundamentals and all that entails. An excerpt from our 4Q21 investor letter.
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Macroeconomic risk for investors has bifurcated. On one hand, duration looms large for growth assets and fixed income. On the other hand, secular stagnation has been an impediment to rate normalization. What are investors to do?
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Assuming stationarity in long-term trends can lead to a poor application of base rates. This plagues various “mean-reversion” market calls. To avoid this, we must understand the principals and formulation underlying long-term metrics and find ways to unearth potential non-stationarity
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The power of compounding only becomes evident over time. Avoiding permanent capital loss is the name of the game for long-term compounding. One of the ways to do so is to cut off the left-tails associated with risk taking. We learn from a master who's done it for quite some time.
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Inflation is at the tip of everyone’s tongue. The current state of markets could herald the beginning of a macroeconomic regime-shift. The downstream consequences impact the relative positioning of participants and the opportunity for alpha capture.
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Uncertainty pervades investing. And yet, few take the time to think about it holistically. Doing so greatly improves an investor’s ability to translate edge into alpha. It starts with bounding one’s knowledge. It continues with transforming that knowledge into insight (analysis). It furthers through synthesizing insights into expected value. It culminates with expected value being expressed in a portfolio through a probabilistic expression of risk. Doing so efficiently over time while maintaining edge is the only way to sustainably outperform.
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