Rule of Three - K Ganesh

• follow the rule of three - whatever the entrepreneur presents, it will normally take three times the capital, three times the effort and three times the time

Soros

Yes, I turned bearish when money market liquidity dried up in August 2007. Declining housing prices were the impending storm clouds, but it started raining when money markets stopped working. Most people, however, didn’t notice. Fundamentals are not about forecasting the weather for tomorrow, but rather noticing that it is raining today.
The great trades don’t require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened—an ongoing deep recession that made it inevitable that the U.K. would not maintain the high interest rates required by remaining in the ERM. Afterward, everyone said, “That was incredibly obvious.” Most of the great trades are incredibly obvious. It was the same in late 2007. In my mind, it was clear that the financial system was imploding and that most market participants hadn’t noticed.

Historically, what is important to the market is not whether growth is good or bad, but whether it is getting better or worse. Growth started getting less negative, and less negative is good news.

And the other 90 percent?
Implementation and flexibility. You need to implement a trade in a way that limits your losses when you are wrong, and you also need to be able to recognize when a trade is wrong. George Soros has the least regret of anyone I have ever met. Even though he will sometimes play up to his public image as a guru who knows what is going on, it is in no sense what he does as a money manager. He has no emotional attachment to an idea.

Believe deeply in the 'cockroach theory' and act on it.

Like those lowly bugs, bad news for a company seldom appears solo; a first disappointment is very likely followed by others.With thousands of stocks available, why remain loyal to under-performers? Stocks are not insulted by your selling them! Move on to what is working rather than sticking with the sleeping dogs or bad ones.

Especially, stocks heavily owned by institutions take long periods to regain money managers' trust and to overcome overhanging stock held by those wishing they'd sold before bad news hit. The widely heralded 'dead-cat bounce' after a terrible fall is small and brief.

more money than Gods

Jones’s innovation was to see how these methods could be combined without any raciness at all—he used “speculative means for conservative ends,” as he said frequently. By selling a portion of his fund short as a routine precaution, even when the charts weren’t signaling a fall, Jones could insure his portfolio against market risk. That freed him to load up on promising stocks without worrying about a collapse in the Dow Jones index: “You could buy more good stocks without taking as much risk as someone who merely bought,” as Jones put it.28 Whereas traditional investors had to sell hot companies like Xerox or Polaroid if the market looked wobbly, a hedged fund could profi t from smart stock picking even at times when the market seemed overvalued.

• Global macro trading is far more difficult and riskier (capital at loss) proposition than equity investing
• Central bank actions are the key catalysts along with deteriorating macro
• Leverage is the key element which magnifies returns both on positive and negative sides; all currency trades were levered up atleast 15 x
• Soros' strategy is not replicable, enormous amount of risk taking ability putting 40% of capital at risk with high leverage;
• Pound short was famous - Key elements were currency peg which was unsustainable + recessionary conditions in UK i.e. at a time when real interest rates had to be reduced; artificially high exchange rate without a control on monetary policy and Germany was to decrease the interest rates i.e. outsourced monetary policy because of a currency peg
  • Current, greek situation seems ditto 
• Druckenmiller always combined fundamentals with technicals and was good at finding out inflexions in the economy - trend following helped him incur less losses than Julian Robertson (tiger capital )in dotcom meltdown
• Julian Robertson was more fundamental and did not believe in technicals - Equity portfolio was stellar compared to his currency bets which went wrong along with the LTCM crisis
• Some portion short in the portfolio thru futures could save alpha during downturns
• Julian Roberston's strategy is replicable (barring the currency stuff) and is more in-line with fundamental investing - Chapter on him is worth reading
• Paulson MBS short seemed like a one time event and again replicability is questionable
• Each one of the greats played to their temperament 

Karna

Once Krishna and Arjuna were walking towards a village. Arjuna was pestering Krishna, asking him why Karna should be considered an unparallelled Donor & not him ?

Krishna, turned two mountains into gold.

Then said, "Arjuna, distribute these two gold mountains among villagers, but you must donate every bit of it ".

Arjuna went into the village, and proclaimed he was going to donate gold to every villager, and asked them to gather near the mountain. The villagers sang his praises and Arjuna walked towards the mountains with a huffed up chest.

For two days and two nights Arjuna shovelled gold from the mountain and donated to each villager. The mountains did not diminish in the slightest.

Most villagers came back and stood in queue within minutes. Now Arjuna was exhausted, but not ready to let go of his Ego, told Krishna he couldn't go on any longer without rest.

Then Krishna called Karna and told him to donate every bit of the two gold mountains.

Karna called the villagers, and said "Those two Gold mountains are yours. " and walked away.

Arjuna sat dumbfounded. Why hadn't this thought occurred to him?

Krishna smiled mischievously and told him "Arjuna, subconsciously, you were attracted to the gold, you regretfully gave it away to each villager, giving them what you thought was a generous amount. Thus the size of your donation to each villager depended only on your imagination.

Karna holds no such reservations. Look at him walking away after giving away a fortune, he doesn't expect people to sing his praises, he doesn't even care if people talk good or bad about him behind his back. That is the sign of a man already on the path of enlightenment".



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Bridge water

Still, even with 40 years' experience managing money Bridgewater still makes mistakes, and, by management's own admission, even Bridgewater's best ideas are only right around 60% of the time:"without significant diversification our results would inevitably produce periods of unacceptable risk. Therefore, we have assembled a portfolio with a sufficient number of uncorrelated strategies to ensure the reliability of our investment returns."

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Dow theory

The age-old Dow Theory gets a mention in the latest issue of Grant's. According to Grant's it is the only reliable way of measuring US economic growth. (Grant's argues that as traditional methods of measuring economic growth don't seem to be influencing Federal Reserve policy decisions, perhaps due to concerns about the data, Dow Theory is a more reliable indicator.)

According to the Theory, when the Dow Industrial and Dow Transportation index move in lockstep, economic strength is showing through. However, when the two indexes move apart, the implications are concerning. Year to date, the DJTA is lagging its industrial peer by 6.3%. What's more, while the DJIA sits only 1.5% below its all-time high printed earlier this year, the DJTA is around 11% below its all-time high reached at the end of last year. It's not just enough to monitor the two indexes on a daily or even monthly basis.

Movement or divergence must be observed over a lengthy period. As the logic follows, if there is to be a valid increase in consumption, manufacturing and production, there will also be an accompanying increase in shipping and transportation. There's a case of extreme divergence between the two indexes. The DJTA is, in fact, breaking down at six-month lows -- one of the widest divergences in Dow Theory's history.

Dow Theory: Still Relevant?

Grant's goes on to discuss the relevance of Dow Theory in today's market. During 1999, when the DJIA reached a new high, will the DJTA lagged, few were concerned. The world was changing, and there was no longer a need for industrial companies. The world economy was being driven by asset light, cash generative tech companies. A bear market followed six months later. The same scenario took place during 2007. In this case, the DJTA moved to a new high, which wasn't confirmed by the DJIA.

Still, when Dow Theory was initially conceived (before the 1913 Federal Reserve Act), few ever thought that the Fed would embark on a money printing binge that has sustained a rally the likes of which the market has only ever seen twice since 1929 (1990 to 1997 and 2003 and 2007).

Concerning data

The divergence between the DJIA and DJTA highlights underlying economic trends. A June 3 report from the Association of American Railroads showed that during the first quarter, total rail volumes across the US fell by 0.6% year on year during the first quarter. During May, BAML analysts noted that their truck shipment survey fell to 60.7, a year-on-year decline of 11%, the ninth consecutive year-on-year decline.

Other data also supports the fact that the index divergence could be a sign that a correction is just around the corner. For example, M&A activity hit a new all-time highlast month, the same happened during 2000 and 2007. Merger wars often lead to a decline in equity prices soon after the peak.

Only time will tell if all of these indicators are indeed warning of an imminent crash.

win rates

The legends in the business, like #Soros and #Robertson, had win-rates around 58%. All about minimizing losses.

Bubble?

EM Valuations!

First rate hike and avg. return