I thought this conversation between @collision and Stan Druckenmiller was outstanding. Whether or not you agree with everything Stan says, there are important lessons for all investors. Here are some things I would mention: youtube.com
2/ Druckenmiller is a very skillful user of base rates. He does not use the term but does use the concept. Importantly, he is keenly aware that nothing is set in stone, so is very mindful about when certain base rates are likely to be useful or when they're not.
3/ Investment processes come in many flavors, and what he does (and has done amazingly well for decades) may not fit your personality. But he mentions the qualities of "ruthless disciple" and being "open minded." These are qualities we can all aspire to.
4/ He says what he learned from George Soros (around minute 32) is that "sizing is probably 70 to 80% of the equation." Excess returns = edge and position sizing. Edge gets a lot of attention and sizing much less.
5/ Friends at multi-strategy firms who have studied the results of hundreds of investing pods report a consistent story: essentially all of the alpha is from stock picking. Very little comes from sizing.
6/ As Druckenmiller says, "It's not whether you're right or wrong, it's how much you make when you're right and how much you lose when you're wrong." Soros purportedly made money on fewer than 30% of his trades.
7/ Druckenmiller stirred a bit of a hornet's nest when he mentioned the hot hand and streaks. (They exist but are weak.) A better parallel is "bursts of high impact works occurring in sequence" in creative fields. That's a more accurate analogy, IMHO.
nature.com
nature.com
8/ As a final observation, @collision asked some very thoughtful questions for someone who is not involved in the investment business day-to-day. Or maybe capital allocation and investing are sufficiently parallel to allow him to guide this discussion so effectively.
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