Half Of Us Underperform, But That Doesn’t Have To Be True!
Let’s build a community to practice, compete, and reward the best. Then we can allocate to the best and beat the market!
Life in the bottom half
Having formed my investing style at technology hedge funds, I am stubbornly long growth and crypto. That strategy has proven disastrous in 2022. This stubbornness has made me unable to move to commodities or value stocks, despite all the evidence (rising rates, inflation, geopolitical risks rising) pointing away from growth.
As a result, for this year to date, I am firmly in the bottom half of analysts on Covey. I have to admit, there is comfort in seeing others in a similar place. On Covey, just like in the markets, half us underperformed a market that is down 18% year to date.
The great stay great and the bad… well, they stay bad
While there may be comfort in crowds, the predictions of our future performance crushes that comfort.
Two weeks ago, Covey published data showing that ranking the top 10% of investors in month n, then investing in them in month n+1 produces a portfolio that returned +25% year to date. We also showed how this phenomenon has been observed in academic research labelled as “Performance Persistence”.
My curiosity drove me to question what the flip side of ☝️strategy would deliver. What would happen if we rank the bottom 50% of investors in month n, then invest in them in month n+1.
Not surprising, the returns are down 32% year to date (excluding leverage), and down over 60% when we include the poor choice of leverage we tend to use.
Some of the most famous hedge funds are right there with you
Seriously, there are plenty of Billionaires underperforming alongside us. Here we analyze the the public filings of the top ten positions at some of the largest hedge funds and calculate their performance. As a group they are down 34% year to date.
That doesn’t mean your returns can’t be great
At first this hurt. I thought of myself as a much better analyst, and that this bad stretch would end one of these months. Digging deeper into “the why”, it makes perfect sense. I don’t have time to read earnings releases or listen to the intricacies of Fed meetings to find slight changes in tone and wording. Beyond time, I am also competing against a world of talent.
I find myself getting beat by this global talent again and again. It’s as if my love for tennis somehow got me on a court with Roger Federer, and I went onto that court, thinking “because I love tennis, I must compete with the best.” Only to lose every single point.
The markets are amazing in that most people do have access to them. We get to go up against Citadel or Goldman Sachs with an app, but we rarely question if we are the right analyst to go up against the best. In professional sports leagues, scouts scour the world and use data to find the best, to pay them to represent their teams. In investing, we all go up against the best, perhaps at our own peril.
Covey wants to find the best and allocate to them
We know there are talented analysts that will consistently beat the market. We have the data to prove it! Today there is no place for that talent to practice and compete with each other. There is no scout league for investment analysts before they enter the market.
Covey is building a community for the best analysts to share their ideas, compete with others, and earn rewards for performance; a place where there is no risk to having a bad strategy; a place where those who love the markets can come practice and learn from others.
I will always love investing, but perhaps I should not allocate 100% of my wealth to my own decision making. We are building Covey as a home for those who love investing, like me, to test out our strategies, all the while rewarding the best with the hope of being able to allocate our funds to them.
Join today and start building your track record
