Looking for “little luck” in the cool market

The current market can be described as “cold” in one word. The Shanghai Stock Exchange 50 hit a two-and-a-half-year low, the Hang Seng Index hit a new low in 11 years, and the market crashes every day with a white horse, which is in response to the cool autumn. How much has everyone’s expectations for the stock market been reduced now? I used to always yearn for the daily limit, but now I can see that the closing is red, I am very happy, at least the account has not shrunk.

Everyone has big ambitions when they first enter the market

The stock market is really honed. People who are new to the market are very motivated and look like they want to conquer the market, but we often overestimate our talents and skills and underestimate others. Just like what House said in the talk show conference, I thought that I would earn 8,000 in two days. Such a rate of return will be the norm in the future. I will soon find that if I make money by luck, I will lose money back by strength.

Another common phenomenon in the stock market is that most investors yearn for the legend of ten times a year, dismissing “stable happiness” and feeling that it is not exciting enough. The results can also be imagined. After all, ten times a year is just a legend. It does not rule out the existence of talented people. However, in real life, it often takes a long time to accumulate to double the income. According to the stock market, seven losses, two levels and one profit. distribution, most people can’t make money.

For example, many people choose products with strong explosive power. When they go up, they are really fierce, and when they go down, they are unambiguous. Although the cumulative performance is still good, how many people can accompany the manager in the process of fluctuation. Go all the way down and eat all the proceeds? Probably a handful. In the end, most people just gained a thrilling story and the “wisdom” to avoid stepping on the thunder next time.

People want to pursue certainty, in fact, uncertainty is the normal state of the world.

But in fact, there are also “little luck” in the uncertainty

It is always only after experiencing Mr. Market’s “severe beating” that he finds out that nothing is true. There are always unknown risks in the market, and according to Taleb, the capital market meets the “fat tail effect”, that is, the probability of extreme tail risks is very high. Sounds desperate? But the solution is always more difficult than the difficulty.

The most important thing is to do a good job in asset allocation, diversify investment, and control positions. But in fact, the simplest thing is to adhere to the principle of barbell allocation, with higher certainty, more allocation on stable assets, less allocation in extreme events, and use the usual income to support the most extreme and tail events.

Let’s take a look, corresponding to private equity investment, which strategies are more certain? As we mentioned, the two strategies of neutrality and arbitrage are relatively consistent. Neutral strategy is to earn an absolute return by means of position hedging; arbitrage is to use the deviation of asset pricing to “spot leaks”, because assets will follow the “law of one price” when the market is efficient, so relatively That said, the certainty of such returns is also relatively high.

$ Grant Thornton Steady Growth Phase 1 (P001203)$ $Xuanling No. C (P001211)$ $Zhanhong Steady Growth Phase 1 Phase 10 (P001091)$

The average returns of the neutral strategy in the past three years are 5%, 12% and 9%, while the average returns of the arbitrage strategy in the past three years are 8%, 13% and 10% respectively, although the performance of the arbitrage strategy is not as good as that of the neutral strategy this year. At present, the average return of the neutral strategy is still nearly 6%, and the average arbitrage strategy has declined slightly by less than 1%. However, from the historical performance, the overall return of the arbitrage strategy is higher than that of the neutral strategy.

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Focus on the arbitrage strategy of “low volatility and stability”

The overall performance of arbitrage is low volatility and stability, and the net worth curve is very smooth. Although a single transaction may not make a lot of money, it can basically make relatively stable money. How stable is the arbitrage? Let’s take a look at how the arbitrage strategy has performed during the major downturns in history.

The chart below shows the trend charts of major indexes and arbitrage strategy indexes since 2013. It can be seen that the arbitrage strategy has shown good stability in the historical slumps in 2015, 2018 and April this year. For example, in 2018, the CSI 500 fell by more than 30%, while the arbitrage strategy index achieved a gain of more than 2%. This year, the largest drawdown of the arbitrage strategy was created in April, only about 4%.

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Arbitrage is well done, such as the old-fashioned Zhanhong and Shengquan Hengyuan, who are doing convertible bond arbitrage, and a relatively small company, Grant Tong. It has been mentioned in the previous articles of the previous ones, and today I will briefly talk about the same.

Grant Thornton can be said to be a very low-key but not to be underestimated manager. They were established in 2010, mainly engaged in CTA arbitrage, of which 70% of inter-temporal arbitrage plus 30% of cross-variety arbitrage, medium and long-term cycles, and at the same time Adopt a full hedging strategy. In fact, the strategy of arbitrage + hedging is very similar to that of the bell, but the types and methods of arbitrage are different. The characteristic of his family is that basically the products have positive returns every year, and the scale of the products is strictly controlled. At present, the self-operated funds account for half of the scale of the products, and the interests are relatively highly consistent. It’s been a good year with a small drawdown and a high Sharpe ratio.

Finally, I would like to say that although we say that arbitrage strategies have relatively stable returns, there is nothing perfect in the world. There are also points to pay attention to in arbitrage: one is to pay attention to the effectiveness of arbitrage strategies in extreme environments : the extreme Events, in fact, still have a certain impact on the arbitrage strategy. This extreme event mainly affects the effectiveness of the model; the other is the leverage ratio : beware of managers opening risk exposures in pursuit of better returns.

What do you think of the arbitrage strategy, welcome to discuss in the comment area.

Selected past content:

They say that arbitrage strategies are unpredictable? Let’s find out how it works

Talk about the manager of this “strategic scarcity”

What is the strength of the best convertible bond manager this year?

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