Monday, January 7, 2013

9% Alpha with Munger & Van Gogh (Hedge Fund 13F Replication Strategies)

From World Beta:
I’ve always believed in learning from other investment greats as mentors, and that is the tagline from my other site The Idea Farm:
“I believe in the discipline of mastering the best that other people have ever figured out.  I don’t believe in just sitting there and trying to dream it up all yourself.  Nobody’s that smart.”  - Charlie Munger

and also one from Vincent:

“I believe I do much better for the time being by first copying some good things than by working without that foundation.” – Van Gogh (HT Janiczek)

I’ve written dozens of posts on this blog on the topic of 13F investing.  For those new to the blog you can search the archives for “13F” and find all of the posts.

Many people have not gotten their hands dirty with 13Fs, databases, or stocks in general so they resort to stories or analogies to explain why 13F forensics should not work.  There is so much misinformation in the 13F space, and most comments are simply not based in a firm understanding of what works and what doesn’t, but rather guesses.   But that is what most financial commentary is (ie all of the commentary surrounding buy and hold and market timing, what drives stocks, often has the feel of debating religion or politics).  So often stories are convincing because they sound true – but that is the beauty of being a quant, like Fama says, “it it’s in the data”…

13F tracking rests on two questions:
-Can anyone beat the market?
-Can you pick a manager ahead of time that will beat the market in the future?
Most of the academic literature suggests no to both answers (on aggregate).  But does that mean someone cannot answer yes to both questions?  Of course not....MORE
See also:
In a Hedge Fund 13F Replication Strategy, Does the Delay Matter?
"More ETFs Play Hedge Fund Copycat"