Alpha Theory Blog

The Checklist: Evolution of an Effective Decision Process Part 2

Cameron Hight, CFA | CEO of Alpha Theory — Wed, 01 May 2013 09:41:00 -0400

As a continuation to The Checklist: Evolution of an Effective Decision Process Part 1 we now turn our attention to money managers and their checklists. Fund managers fall into similar traps of overconfidence about their ability to manage the complex system of investing. Dr. Gawande discusses investing (Chapter 8) by analyzing three public equity managers that employee an explicit checklist...

The Checklist: Evolution of an Effective Decision Process Part 1

Cameron Hight, CFA | CEO of Alpha Theory — Tue, 30 Apr 2013 11:08:44 -0400

Back before I started Alpha Theory, I was an analyst at a hedge fund. I spent my days trying to find good ideas in which we could invest. Along the way, I built a mini-checklist to speed up the process of evaluating potential ideas. The checklist included mostly quantitative metrics that I could build into a fancy spreadsheet like current...

March Madness 2013 - Your Mom Always Wins

Cameron Hight, CFA | CEO of Alpha Theory — Mon, 18 Mar 2013 10:07:38 -0400

I first posted the blog below in 2012. As I'm preparing my brackets for 2013, I was referencing this post as a reminder of how to operate the machine I built last year. First step, download data for 2013. I typed in KenPom.com to get Winning Percentage scores to drive my March Madness Machine. KENPOM.COM WAS DOWN!!! Apparently, I'm not...

Kelly Criterion in Practice Part 2

Cameron Hight, CFA | CEO of Alpha Theory — Fri, 01 Feb 2013 11:14:00 -0500

As a continuation to Kelly Criterion in Practice Part 1 we dive into more tests and conclusion of the evaluation of the Kelly Criterion for portfolio management. Trial #2. The performance improvement of the portfolio made me wonder how a group of investments with similar Expected Returns (all 20%) but different payoff structures would look (see below). Here we see...

Kelly Criterion in Practice Part 1

Cameron Hight, CFA | CEO of Alpha Theory — Thu, 31 Jan 2013 15:25:31 -0500

A friend of mine recently forwarded an article by Kyle Mowery of GrizzlyRock Capital where he discusses the Kelly Criterion and how his fund implements it for position sizing. First off, I'll say kudos to GrizzyRock Capital for a thoughtful approach to position sizing. I've written numerous times about the benefits and deficiencies of the Kelly Criterion and Mr. Mowery's...

The Real Cost in Cost to Borrow

Cameron Hight, CFA | CEO of Alpha Theory — Thu, 27 Dec 2012 14:57:48 -0500

Alpha Theory has always incorporated the Cost to Borrow in the Risk-Adjusted Return calculation of shorts but recently we’ve improved our calculations and I’ve really been pounding the table to get clients to incorporate Cost to Borrow more formally in their decision process. For those unaware, the “Cost to Borrow” is the annualized expense charged to a manager for borrowing...