Portfolio turnover concept:
portfolio returns (ROA) is dependent on two drivers:
- How much you make on each investment (profit margin)
- How quickly you can turn over your assets (asset turnover)
Keep reallocating capital from positions that already gained (now have worse risk/reward) to the best risk/reward opportunity (return on capital), limiting position size only by your portfolio rules.
The more opportunities like this you can find and the faster they play out (clear catalyst), the higher your portfolio returns will be:
How to make money in the markets
Making money consistently in the long run is NOT about predicting the future. Nobody has a crystal ball and nobody can predict the future.
Instead, making money in markets is all about three things:
- managing risk (focus on return OF investment, max. position size and net exposure to various risks)
- making rationally attractive bets (positive risk/reward only)
- betting big when the time is right (The investment with the highest risk/reward or expected value % gain in a given timeframe should have the largest portfolio allocation. When risk/reward is extremely positive, make the biggest bet allowed by your position size management. So when pyramiding into positions -adding more - make the biggest addition when the risk/reward is most positive)
How to beat the trading bots (algos, HFT)
Stretch out their holding period to at least a few days, but preferably months or years. Computers have made things efficient in the short term but have actually contributed to greater inefficiencies in the long term. Entry and exit points are not that important. The value is in the idea and the risk management. You should be thinking more, and doing less - which goes for just about everything nowadays.
Source: Jared Dillian, Mauldin Economics
Expected growth concept - better than expected return
This is an excellent article by one of my favorite authors about the importance of the Expected growth when making bets in investing or other activities which have an expected probability and an expected payout estimates. The bet size has influence over the Expected growth and can result in losses or inferior returns even when making bets that have positive expected value!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.