Millennium and Citadel are both hedge funds, who do not engage in market making at all. They are most similar to other multi-strategy hedge funds like Balyasny or Point72.

You may be thinking of Citadel Securities, who are a market making firm and do engage in high frequency trading. Other large and well known HFT firms include Hudson River Trading, Tower Research, Jump Trading, Virtu, IMC and Optiver.

Jokes aside, I appreciate callouts and/or corrections!

Ok, so you added high-frequency random noise to the estimated averages to make it feel more realistic. To me, this makes it feel less realistic.

Anyway, don't mean to gripe, this is a cool project!

I think the more interesting fluctuations are those which change on an hourly ("checking the clock", spikes when people hear a chime or get notifications on the hour), daily ("eating lunch" spikes when UTC+8 hits lunchtime in eastern China and craters when it's noon in the middle of the Pacific), or other periodic basis.

- Ruhlman's 20 by Michael Ruhlman

- How to Cook Everything by Mark Bittman

If you only buy milk in multiples of 500mL, you're buying a luxury brand or from a corner shop -- both situations use the slightly smaller (vs 568mL) size to make the price seem lower.

You can see at Tesco [1] that Yeo Valley, Arla, Cravendale, Finest, Tesco Filtered are all 1 or 2 litres. "Normal" milk is 2 or 4 pints.

(The EU used to have regulations around this sort of thing, but I think they've unfortunately been repealed for most products. It's why bread was only sold in multiples of 400g -- it meant the merchant couldn't discreetly reduce the size of some/all products.)

[1] https://www.tesco.com/groceries/en-GB/shop/fresh-food/milk-b...

The dairy that delivers here does 500ml, 1l, and 2l, as does the one I bought milk from before I moved, and the one before I moved the time before that.

The normal milk is all in pints.

Your central premise is flawed -- in particular

> Last 3 years has shown that to be a good investor you need to know macroeconomics

This is not true. It is true that 'macro' events (central bank actions, supply/demand shocks, wars, pandemics) affect prices, but it's not true that you need to be a macroeconomic expert to be a good investor:

1. Any understanding of macro you get from reading in your spare time is unlikely to be good enough to use as the basis for an investment strategy (although you may think it is -- but this will just lead to you making bad, or at best random, market timing decisions)

2. Even if you could become an expert, there isn't a clear mapping from macroeconomic outcomes to asset prices. So you not only need to be right about the macro picture, you need to be right about the effect it will have on asset prices (including the second- and third-order effects, e.g. central bank and other investor reactions to the macro outcomes)

3. Even if you do become a macro expert, and you have the correct mapping from macro outcomes to asset prices, it's not enough. You don't only need to be right about the macro outcomes, you need to be more right than the market. The market is made up of a huge number of diverse actors, many of whom have access to vast resources and spent literally all of their waking time trying to use macro data to predict asset prices. Are you better than them?

4. Even if the above can all be overcome -- is this really the highest return use of your time (compared to e.g. getting better at your day job and increasing your income, or starting a company in your area of expertise and getting rich that way)

That all sounds daunting, but fortunately there's a solution! Simply buy a diversified set of investments in a tax-efficient wrapper for a total cost of < 10 basis points annually, and add capital to the pot regularly, and you will get great investment results over any 25-30 year time horizon, with essentially zero effort.

I think this comment is right on the money. None of what I learned in graduate school would help you forecast the price of a specific asset.

Some of the large investment firms do employ economics PhDs to help them make forecasts of particular broad macro variables (inflation, unemployment, etc.). I don’t know of anyone who uses their macro background to forecast specific asset prices (e.g., Amazon’s share price).

(Note that there are people in economics who study time series forecasting - that can be used to make forecasts for specific assets but is considered somewhat separate from most macro modeling, which is micro founded and done in a DSGE framework.)

I’d recommend you study macro bc it is interesting and intellectually rewarding, but I don’t think it’s going to tell you anything about pricing a specific asset.

Entire prop trade desks exist to bet on macro news like labor job reports, on many different asset types through derivatives like index futures, FX futures, etc… This is very easy to observe if you view tick data for these derivatives before and after news is released.

While macro view is less relevant on a single equity, it’s very much a proven way of investing in a variety of asset classes.

[1] https://www.institutionalinvestor.com/article/b1vl6gf18v9f5v...

However, my retail investing experience suggests that what macro is good for is spotting cracks in the framework with respect to specific countries and industries. Cracks aren't prices - when a market is way out of equilibrium, prices can go along saying one thing for quite some time while the real economy does something else. But it can produce broad strokes answers of "don't touch this asset" vs "only temporary setbacks here".

I can agree with that,

OTOH someone with uncanny ability to predict asset prices might be expected to do exceptionally well in macroeconomics, perhaps without any formal background at all.

A good deal of math would always be helpful and I like a mixture of business math and non-business math operating in the background.

Even if OP wants to be an active investor, it's more likely they can do it Buffett style than Soros style. Many great investors have zero macro insight. Buffett, Munger, Lynch, Icahn, Ackman. There is a direct mapping from company level insight to the securities price - it's not easy, but it's at least understandable.

DCA is a useful side effect when you're investing regularly, but on average it does not beat investing sooner.

> Are you better than them?

Are you?

The less glib answer is that what I said above applies to managing your own money as a part time investor. If you are managing other people's money as well as your own, and doing it full time, with access to huge datasets and sophisticated models, then you are playing a totally different game.

I think he's saying that no-one person can be better.

Stock market crashed on 9-11. So what happened the next time the world had such a huge hit (Covid)? the markets rose because everyone was piling to get that same post-911 dip. It didn't exist because everyone that was expecting it caused the same to not happen. So I guess if you think you know what's going to happen next. You're probably 1 of a million others that are guessing the same thing and so what you think will happen doesn't.

It also doesn't help that the government's reaction changes to major crisis events too - and those actions you can't predict- let alone what affect they will have.

It's basically a super large neural net (the largest). I mean can someone put in something crazy into GPT3 and before they enter it (something not entered previously) GUESS what's going to come out?

What? The market (SPX) dipped 35% within a couple weeks in March 2020. Yes, it rose afterwards, because the FED opened the floodgates, but there was a very significant dip first.

Not OP but can answer... It's because if you don't start with a massive amount of capital you won't make enough money to support yourself. Hence why OP recommended to simply invest the time into your own job or start a business.

A 40% return on $100k (which is a great return BTW) is barely more than minimum wage...

Meanwhile a few % of a billion $ can sustain a firm.

There is always someone predicting an upcoming market crash. People like Grantham (cited in the post) have been predicting a mega crash for most of the last decade. Market crashes occur every 10-20 years but the thing is, over that 10-20 year cycle the market is always net up, so if you sit out the cycle because of worries about an upcoming crash you could easily miss out on 5-10 years of great returns.

The post author frequently compares flow variables (eg earnings, GDP) to stock variables (eg market cap). That’s not necessarily terrible, but the ratio is always sensitive to interest rates (because the stock variable discounts future values of the flow variable, and when rates are low the discounting has less of an effect). Market cap/earnings and market cap/GDP are high now because interest rates are low (asp because growth expectations are high, but that’s not necessarily incorrect). Before the dot com crash US interest rates were 6%, compared to 0.25% now — of course that skews the statistics.

Michael Burry is cited as “someone with a proven track record of predicting market crashes” but in fact he predicted exactly one crash. Well, so did John Paulson, and the ensuing decade proved that it was just luck. Mark Cuban “predicted” the dot com crash. It doesn’t mean they are geniuses, it means they got lucky once.

Growth in margin debt is cited as a reason to worry. But margin debt has grown because assets have grown. The S&P 500 has double since the lows of March 2020, so the fact that margin debt has doubled is not a cause for concern. As a percentage of assets, margin debt has been stable for the last decade.

This post is pointless fearmongering, nothing more. Of course, there will be a crash at some point. It could be in six months, a year, five years or ten years. This guy can’t predict it any better than anyone else can.

This was an incredibly clear way to put it. I can't believe I haven't thought of it that way before! Thanks.

This is simply not true especially if you take inflation into account.

And even more so if you look outside the US (one of the top 1% of market performers over the last 100 years - hindsight bias).

For example Japan total return index had a 30 year drawdown post 1989 even in nominal terms. The US market from 1966-1992 total inflation adjusted return (26 years) was zero. http://www.simplestockinvesting.com/SP500-historical-real-to...

Japan (population 125 million) is third in the world in GDP, with China (population over 1 billion) and the US (population 330 million) ahead of it. More remarkably this is from a tectonically unstable, volcanic island chain with limited natural resources, which is in stark contrast to either the US or China. This is probably an underestimate as they have a considerable secondary investment/production effort going on across Asia.

Japan's priorities are the same as everybody else's, they're just rather good at disguising that.

I mean if you think about it, 6 of the top 10 oldest companies are Japanese [1]. That says something about the value of continuity and stability in Japan's mindset. I don't see that changing any time soon tbh. (And yes, some of them are a "thousand" year old, though of course not thousand"s")

[1] : https://en.m.wikipedia.org/wiki/List_of_oldest_companies

This was during a period when high dividend stocks were in fashion. I'm willing to bet that during that period stocks probably beat almost every other form of investment with regards to profits.

This illustrate why makes me uneasy of current times, that blind faith in the stock market as the ultimate investment. From FIRE communities to r/wallstreetbets to regular retirement to professional fund manager, don't ask question and join the dance, it always was and always will be 6-8% per year, it's a law of nature.

The original claim is 10-20 years. That's a valid ballpark estimate. There can be lost decades, but when you get closer to 20 years, it has been all good.

ps. If you spread the entry into market into 5-10 years there has never been a decade of zero or negative returns (total, inflation adjusted).

FINRA Margin Debt shows $940 Billon. There is an additional shadow margin of unknown size. Margin debt, shadow margin, taking loans against properties and buying stocks, ... the size of leverage may surprise us.

There may be even larger systemic risk in the corporate debt market. The liquidity of high-yield is questionable and rating agencies (again) seem to be again part of the problem in rating junk as BBB. Bond market is not as boring as it used to be.

Your conflating it with one data point, as those differing viewpoints that predicted 2008 is in a group is than one data point as they all covered a different mechanism of a set of systems as it was not just one system that crashed but several.

We have the same problem in medicine, ritalin is based on one system solution of ADHD...however if you foloow a multiple system approach you can take Phenyanalinine and Darek chocolate, L-glutamine, etc and actually have a better solution of managing adhd without having to do drug holidays.

Crashes are convergence of several data points of crashes in multiple systems that converge together to produce abig crash.

Is the Log4j vun one tiny crash of one system or a crash of several?

His "proven track record" would be less than 10%, I'd imagine.

Could be a simple monthly subscription which buys managed basket of options (call on VIX, puts on SP500, Nasdaq, etc)

Or should the average retail investor get into the Black Swan ETF (https://www.amplifyetfs.com/swan.html) or similar to protect against these events?

Obviously that’s only true in the long term. There were some times when buying insurance may have been a good idea (eg early 2020) but that’s easier to say in hindsight. If you’re managing savings for a pension then this kind of thing could make sense as you get old because you mightn’t live long enough for the costs to average out. But the normal way to deal with that is adjusting the balance between equities and bonds.

It's 90% of treasure bonds and some small percent of options

On a bulish market, you loose some performance (insurance costs) for renewing the options

On a bearish market (crash) your bonds loose market value, but the options will go up N amount of times. which will give you overall positive performance.

If the market stagnates, you'll loose money as the options continue to be renewed while the bonds are stable.

And you don't need to allocate all your portfolio to this ETF, can simply combine it with everything else you have. ----

Anyway

I've done this before, I believed the market could become wild

I bought VIX options and got lucky with a 20x score

Obviously this is not that easy or accessible to retail investors (and it's gonna cost at least 100$ monthly)

But if one's to believe we're near the peak, and the crash could be coming any time soon (next couple of months), buying this kind of insurance would make sense (I think about it as Insurance as a Service, because I just want a simple monthly subscription for the work behind the scenes)

in the end it's just another market traded instrument, and you can sell it before expiration for a possibly better price

Even if SPY would be better than any less diverse or hand picked options from retail under the same crash market conditions

More complex the product, higher the counterparty risk.

Paper currency, FDIC insured bank accounts, CDs, TIPS, Treasuries, VCSH…

Biggest of all, having a network of people that can and will help you (such spouse, kids, grandkids, cousins friends, political allies, etc)

my idea is that if you have a stock portfolio, you could get "insurance" on it

Big banks and investment funds certainty do it, one way or another

I'was simply thinking of a more accessible approach to retail investors

"insurance as a service", pay 50$ per month for protection against stock crashes

Technically, I'm guessing this would not be called "insurance" but a financial instrument or investment which buyers/investors would get benefits under certain conditions.

I do not know what you mean by this, but hedge funds hedging their positions is not “insurance”.

You cannot earn a return with no risk. If you want to de risk, the counter party is going to want commensurate payment to take on the risk plus a profit premium.

Just like you cannot profit off of auto insurance (unless you have inside knowledge of their premium pricing and can game it), you would not be able to profit off of “insuring” your investments, which would defeat the whole point of investing. At that point, just invest in less risky things, like bonds or cash.

Note that risk has a time component, so risk for an equity index fund for year 0 to 3 will be higher than a bond fund, but for years 20 to 30 it might be basically the same. So insuring yourself against risks for an investment in an equity index fund you do not need for 2+ decades is pointless.

this goes to my last point

> Technically, I'm guessing this would not be called "insurance" but a financial instrument or investment which buyers/investors would get benefits under certain conditions.

I would not expect to have this insurance for long periods of time

But could be interesting when it feels like we hit the peak of the market

You only have a loss when you sell a security. So if you are interested in needing to be able to sell securities in the next 3 years, then invest it in a security that will not lose value in the next 3 years, such as bonds or FDIC insured accounts or cash. If you are not selling in the next 3 or 5 or 10 years, then historically, equities do not lose money that far in the future. The further out into the future, the lower the probability of loss.

So you “insure” yourself by making appropriate investments for the appropriate time horizon.

and I'd be interested to compare performance of both approaches (probably you're right, anything else is too difficult or expensive for retail investors and doesn't give extra return)

thank you for the exchange so far

Returns? Or prices?

Unless you actually cash out you are still supporting the collective delusion. That is true even over booms and busts.

I know people that have been waiting for a crash for so long that it would take something like a 75% drop in markets to now vindicate their strategy of waiting on the sidelines.

And to add to this, dollar cost averaging means if you drop from 300% gains to 200% gains (let's say the market drops 100% for a laugh), you're not only still up 200%, but as your (automated) investment strategy continues to buy stocks you're now buying them at a massive discount. When they climb again, you won't be up 300% again, you'll be up closer to 1,000% (a lot, anyway.)

I don't value the outcome (you call it luck), but the reasoning behind.