Chase performance all you want.. it doesn't need to matter

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Financologist
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Chase performance all you want.. it doesn't need to matter

Post by Financologist »

Some people seem to think that chasing performance is a bad strategy. If that were true, then selling those "chased" stocks/sectors/countries immediately must be a good strategy. It's not.

It shouldn't matter whether an investor is chasing performance, buying "deep value" or none of the above as long as she is ...

1. tax and cost efficient
2. staying invested somewhere along the efficient frontier
3. maintaining appropriate risk

In conclusion, performance chasing or any other market timing activity that doesn't shift overall market exposure shouldn't change your odds of under/over performing the relevant index.

Note, this is not an argument against the many pitfalls of performance chasing. This is also not an argument against re-balancing, which intends to periodically restore an intended asset allocation. It's only to argue that performance chasing is not necessarily a losing proposition if done within certain parameters.
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vineviz
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Re: Chase performance all you want.. it doesn't need to matter

Post by vineviz »

Financologist wrote: Wed Sep 02, 2020 4:50 pm In conclusion, performance chasing or any other market timing activity that doesn't shift overall market exposure shouldn't change your odds of under/over performing the relevant index.
Unfortunately, "performance chasing" DOES change your odds of under/over performing the relevant index. Namely, it greatly increases the odds of underperformance.

Decades of quite potent evidence supports this conclusion, which is why "don't chase past performance" is such a reliable maxim. There is a large gap between the average return of mutual funds and the average return of mutual fund investors, and the former is always greater than the latter. The reason is that investors can't stop (or, at least, historically have not been able to stop) themselves from buying last year's winners and selling last year's losers. This is true for both individual and institutional investors.

https://www.morningstar.com/articles/91 ... -portfolio
Image

Buying lucky stocks or funds (which is essentially what performance chasing amounts to) can't NOT be a losing strategy.

Just to illustrate, I did a quick test of what would happen if an investor just bought the iShares S&P style ETFs with above-average performance the previous year, compared to simply owning Vanguard Total Stock Market instead.

Image

"Dynamic allocation" is the performance chasing strategy: compared to VTSMX the performance chasing strategy had lower returns (346 bps per year) with higher volatility and larger drawdowns.

This is NOT a behavior that any investor should think is okay or "doesn't matter".
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
langlands
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.

Also, that article leaves until the very end and your misleading post neglects to mention that that "fired" "hired" bar chart ignores survivorship bias. Taking that into account, "hired" and "fired" have very similar future performance (as one would expect). That article in fact vindicates OP's point.
Last edited by langlands on Wed Sep 02, 2020 6:20 pm, edited 2 times in total.
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Financologist
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Re: Chase performance all you want.. it doesn't need to matter

Post by Financologist »

langlands wrote: Wed Sep 02, 2020 5:47 pm If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.
+1
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vineviz
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Re: Chase performance all you want.. it doesn't need to matter

Post by vineviz »

langlands wrote: Wed Sep 02, 2020 5:47 pm If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.

Also, that article leaves until the very end and your misleading post neglects to mention that that "fired" "hired" bar chart ignores survivorship bias. Taking that into account, "hired" and "fired" have very similar future performance (as one would expect). That article in fact vindicates OP's point.
As I said, there are literally decades of research (dozens of independent studies) demonstrating the headwind that performance chasing creates.

It’s all available to anyone who cares about facts more than postulation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
burritoLover
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Re: Chase performance all you want.. it doesn't need to matter

Post by burritoLover »

Yes, please keep driving up tech so my SCV tilt has better returns post-crash.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
Impatience
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Re: Chase performance all you want.. it doesn't need to matter

Post by Impatience »

burritoLover wrote: Wed Sep 02, 2020 7:23 pm Yes, please keep driving up tech so my SCV tilt has better returns post-crash.
Sounds like you’re performance-chasing...!
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Re: Chase performance all you want.. it doesn't need to matter

Post by burritoLover »

Impatience wrote: Wed Sep 02, 2020 7:27 pm
burritoLover wrote: Wed Sep 02, 2020 7:23 pm Yes, please keep driving up tech so my SCV tilt has better returns post-crash.
Sounds like you’re performance-chasing...!
Yeah, cause SCV has done awesome lately. :oops:
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Re: Chase performance all you want.. it doesn't need to matter

Post by ChinchillaWhiplash »

burritoLover wrote: Wed Sep 02, 2020 7:31 pm
Impatience wrote: Wed Sep 02, 2020 7:27 pm
burritoLover wrote: Wed Sep 02, 2020 7:23 pm Yes, please keep driving up tech so my SCV tilt has better returns post-crash.
Sounds like you’re performance-chasing...!
Yeah, cause SCV has done awesome lately. :oops:
It’s doing quite well if you bought it in March :twisted: My RZV holding is up around 60% since then :beer :moneybag :greedy
burritoLover
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Re: Chase performance all you want.. it doesn't need to matter

Post by burritoLover »

ChinchillaWhiplash wrote: Wed Sep 02, 2020 7:35 pm
burritoLover wrote: Wed Sep 02, 2020 7:31 pm
Impatience wrote: Wed Sep 02, 2020 7:27 pm
burritoLover wrote: Wed Sep 02, 2020 7:23 pm Yes, please keep driving up tech so my SCV tilt has better returns post-crash.
Sounds like you’re performance-chasing...!
Yeah, cause SCV has done awesome lately. :oops:
It’s doing quite well if you bought it in March :twisted: My RZV holding is up around 60% since then :beer :moneybag :greedy
Nice!
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
langlands
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

vineviz wrote: Wed Sep 02, 2020 7:17 pm
langlands wrote: Wed Sep 02, 2020 5:47 pm If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.

Also, that article leaves until the very end and your misleading post neglects to mention that that "fired" "hired" bar chart ignores survivorship bias. Taking that into account, "hired" and "fired" have very similar future performance (as one would expect). That article in fact vindicates OP's point.
As I said, there are literally decades of research (dozens of independent studies) demonstrating the headwind that performance chasing creates.

It’s all available to anyone who cares about facts more than postulation.
Decades of research and you decide to post as your representative an article that argues against your position?

Intelligent physicists come up with theories before testing them with experiments. Hence the difference between Newton and Kepler who understood the basic principle of gravitation and momentum vs. Ptolemy who had his ugly theory of epicycles because he relied solely on fitting data (to his credit, he was born over a thousand years earlier than the other two men of course). You still haven't responded to:
If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
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Financologist
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Re: Chase performance all you want.. it doesn't need to matter

Post by Financologist »

langlands wrote: Wed Sep 02, 2020 7:41 pm
vineviz wrote: Wed Sep 02, 2020 7:17 pm
langlands wrote: Wed Sep 02, 2020 5:47 pm If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.

Also, that article leaves until the very end and your misleading post neglects to mention that that "fired" "hired" bar chart ignores survivorship bias. Taking that into account, "hired" and "fired" have very similar future performance (as one would expect). That article in fact vindicates OP's point.
As I said, there are literally decades of research (dozens of independent studies) demonstrating the headwind that performance chasing creates.

It’s all available to anyone who cares about facts more than postulation.
Decades of research and you decide to post as your representative an article that argues against your position?

Intelligent physicists come up with theories before testing them with experiments. Hence the difference between Newton and Kepler who understood the basic principle of gravitation and momentum vs. Ptolemy who had his ugly theory of epicycles because he relied solely on fitting data (to his credit, he was born over a thousand years earlier than the other two men of course). You still haven't responded to:
If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
thanks for articulating better than I could.
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Re: Chase performance all you want.. it doesn't need to matter

Post by burritoLover »

langlands wrote: You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
Um,no, staying the course does not require timing your exit out when the performance wanes which is virtually impossible to do successfully.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
langlands
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

burritoLover wrote: Wed Sep 02, 2020 7:56 pm
langlands wrote: You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
Um,no, staying the course does not require timing your exit out when the performance wanes which is virtually impossible to do successfully.
I know that staying the course doesn't require timing your exit. Hence the phrase "stay the course."

I'll use a simple coin flipping analogy. Say you're betting on independent fair coin flips (50/50 heads/tails). So far it's come up HHHHHHH. The gambler sees this and goes "aha, there's a hot streak! The next one is obviously H!" Bogleheads goes "No, don't chase performance! The coin flips are independent, it's impossible to beat the coin market." Yes, the Bogleheads are correct. It's impossible to beat it. But it's also impossible to underperform. Let the gambler bet H. Or T. The point is it doesn't matter.
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Re: Chase performance all you want.. it doesn't need to matter

Post by bubbly »

langlands wrote: Wed Sep 02, 2020 8:03 pm
burritoLover wrote: Wed Sep 02, 2020 7:56 pm
langlands wrote: You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
Um,no, staying the course does not require timing your exit out when the performance wanes which is virtually impossible to do successfully.
I know that staying the course doesn't require timing your exit. Hence the phrase "stay the course."

I'll use a simple coin flipping analogy. Say you're betting on independent fair coin flips (50/50 heads/tails). So far it's come up HHHHHHH. The gambler sees this and goes "aha, there's a hot streak! The next one is obviously H!" Bogleheads goes "No, don't chase performance! The coin flips are independent, it's impossible to beat the coin market." Yes, the Bogleheads are correct. It's impossible to beat it. But it's also impossible to underperform. Let the gambler bet H. Or T. The point is it doesn't matter.
That post took an unexpected turn from what I was expecting. I figured the gambler was going to bet T based on the “gambler’s” fallacy :D
columbia
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Re: Chase performance all you want.. it doesn't need to matter

Post by columbia »

You problem won't outperform the market, but that's also true of investors with assiduously "optimized" portfolios.
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

bubbly wrote: Wed Sep 02, 2020 8:10 pm
langlands wrote: Wed Sep 02, 2020 8:03 pm
burritoLover wrote: Wed Sep 02, 2020 7:56 pm
langlands wrote: You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
Um,no, staying the course does not require timing your exit out when the performance wanes which is virtually impossible to do successfully.
I know that staying the course doesn't require timing your exit. Hence the phrase "stay the course."

I'll use a simple coin flipping analogy. Say you're betting on independent fair coin flips (50/50 heads/tails). So far it's come up HHHHHHH. The gambler sees this and goes "aha, there's a hot streak! The next one is obviously H!" Bogleheads goes "No, don't chase performance! The coin flips are independent, it's impossible to beat the coin market." Yes, the Bogleheads are correct. It's impossible to beat it. But it's also impossible to underperform. Let the gambler bet H. Or T. The point is it doesn't matter.
That post took an unexpected turn from what I was expecting. I figured the gambler was going to bet T based on the “gambler’s” fallacy :D
Yes that's true :). But since we're talking about performance chasing, this gambler had to be more of a "hot hand" kind of guy. Incidentally, there are a lot of smart SCV advocates here, but I bet a few value proponents are (probably subconsciously) in fact falling for the "gambler's" fallacy. International and value have underperformed for so long...they're due for outperformance any day now. To clarify, I know there are many good arguments for an international or value tilt currently that are valid and not fallacious.
Last edited by langlands on Wed Sep 02, 2020 8:33 pm, edited 2 times in total.
MAI
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Re: Chase performance all you want.. it doesn't need to matter

Post by MAI »

Lots of trading tends to cause underperformance because of the bid-ask spread, even with no trading fees. Each time you buy or sell, you tend to get the worst of the two prices (bid when selling, ask when buying).
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Re: Chase performance all you want.. it doesn't need to matter

Post by burritoLover »

langlands wrote: Wed Sep 02, 2020 8:03 pm
burritoLover wrote: Wed Sep 02, 2020 7:56 pm
langlands wrote: You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
Um,no, staying the course does not require timing your exit out when the performance wanes which is virtually impossible to do successfully.
I know that staying the course doesn't require timing your exit. Hence the phrase "stay the course."

I'll use a simple coin flipping analogy. Say you're betting on independent fair coin flips (50/50 heads/tails). So far it's come up HHHHHHH. The gambler sees this and goes "aha, there's a hot streak! The next one is obviously H!" Bogleheads goes "No, don't chase performance! The coin flips are independent, it's impossible to beat the coin market." Yes, the Bogleheads are correct. It's impossible to beat it. But it's also impossible to underperform. Let the gambler bet H. Or T. The point is it doesn't matter.
Yes, you could potentially outperform the market for any given performance chasing attempt, it is almost impossible to do this consistently enough to outperform a stay the course strategy over the long term. Your analogy also sucks. :P :P
Last edited by burritoLover on Wed Sep 02, 2020 8:26 pm, edited 1 time in total.
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langlands
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

MAI wrote: Wed Sep 02, 2020 8:21 pm Lots of trading tends to cause underperformance because of the bid-ask spread, even with no trading fees. Each time you buy or sell, you tend to get the worst of the two prices (bid when selling, ask when buying).
That would have to be a LOT of trading. We're talking about turning your portfolio at most once a year. That's at most 0.1% cost.

Additionally, retail benefits from being categorized as "uninformed" flow. It's perhaps not well known, but in many cases you actually get a better fill than an aggressive trade by a hedge fund. Unless you're loaded (moving more than $5 million, honestly more than something like $50 million but let's be conservative), your costs are on the order of 0.05%, i.e. the expense ratio for a Vanguard fund.
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

burritoLover wrote: Wed Sep 02, 2020 8:25 pm
langlands wrote: Wed Sep 02, 2020 8:03 pm
burritoLover wrote: Wed Sep 02, 2020 7:56 pm
langlands wrote: You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
Um,no, staying the course does not require timing your exit out when the performance wanes which is virtually impossible to do successfully.
I know that staying the course doesn't require timing your exit. Hence the phrase "stay the course."

I'll use a simple coin flipping analogy. Say you're betting on independent fair coin flips (50/50 heads/tails). So far it's come up HHHHHHH. The gambler sees this and goes "aha, there's a hot streak! The next one is obviously H!" Bogleheads goes "No, don't chase performance! The coin flips are independent, it's impossible to beat the coin market." Yes, the Bogleheads are correct. It's impossible to beat it. But it's also impossible to underperform. Let the gambler bet H. Or T. The point is it doesn't matter.
Yes, you could potentially outperform the market for any given performance chasing attempt, it is almost impossible to do this consistently enough to outperform a stay the course strategy over the long term. Your analogy also sucks. :P :P
No it doesn't. You obviously did not understand any of my posts in this thread. I don't think I can be much clearer, so not sure what else to say.
burritoLover
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Re: Chase performance all you want.. it doesn't need to matter

Post by burritoLover »

langlands wrote: Wed Sep 02, 2020 8:27 pm
burritoLover wrote: Wed Sep 02, 2020 8:25 pm
langlands wrote: Wed Sep 02, 2020 8:03 pm
burritoLover wrote: Wed Sep 02, 2020 7:56 pm
langlands wrote: You can't have it both ways (telling people both that chasing performance guarantees underperformance and that one should passively "stay the course".) If you can underperform the market, you can overperform it by simply doing the exact opposite (in a retirement account for example with no capital gains tax and now with commissions at zero, essentially no trading costs).
Um,no, staying the course does not require timing your exit out when the performance wanes which is virtually impossible to do successfully.
I know that staying the course doesn't require timing your exit. Hence the phrase "stay the course."

I'll use a simple coin flipping analogy. Say you're betting on independent fair coin flips (50/50 heads/tails). So far it's come up HHHHHHH. The gambler sees this and goes "aha, there's a hot streak! The next one is obviously H!" Bogleheads goes "No, don't chase performance! The coin flips are independent, it's impossible to beat the coin market." Yes, the Bogleheads are correct. It's impossible to beat it. But it's also impossible to underperform. Let the gambler bet H. Or T. The point is it doesn't matter.
Yes, you could potentially outperform the market for any given performance chasing attempt, it is almost impossible to do this consistently enough to outperform a stay the course strategy over the long term. Your analogy also sucks. :P :P
No it doesn't. You obviously did not understand any of my posts in this thread. I don't think I can be much clearer, so not sure what else to say.
What you are saying makes no sense. For the performance chasing part, the future expected returns of any asset is lowest when its relative price is high. What has higher prices - those assets that have performed better lately. What is performance chasing - buying assets that have performed well recently. You have to sell something to performance chase. What are you going to sell? Something that is not performing well. What is that? Selling low to buy high.

Then you talk about buying maybe deep value. Value stocks have additional risk. How can you maintain the same risk when you are tilting to a riskier asset? Are you going to increase your bond allocation as a result?
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Steve Reading
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Re: Chase performance all you want.. it doesn't need to matter

Post by Steve Reading »

langlands wrote: Wed Sep 02, 2020 5:47 pm If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.

Also, that article leaves until the very end and your misleading post neglects to mention that that "fired" "hired" bar chart ignores survivorship bias. Taking that into account, "hired" and "fired" have very similar future performance (as one would expect). That article in fact vindicates OP's point.
Haha I love that. Obviously, you bring up an excellent point that, as a fundamental investor who does not believe one can time the market consistently, have struggled with.

My solution? I believe performance chasing offers lower expected returns. And the opposite (buying out-of-flavor, cheap assets) offers a higher expected return than the market. But of course, nothing reliable for the exact reasons you give. So I agree with you: any BH that says it is very unlikely to beat the market long-term, that then also says it's very easy to consistently underperform it doing X (ex: performance chasing) is obviously being inconsistent.


I do disagree with OP though. Most shouldn't chase performance NOR higher expected returns (the opposite of performance chasing). Most are probably best with the neutral, market portfolio. Just my opinion.
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vineviz
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Re: Chase performance all you want.. it doesn't need to matter

Post by vineviz »

langlands wrote: Wed Sep 02, 2020 7:41 pm Decades of research and you decide to post as your representative an article that argues against your position?
As I said, the evidence is voluminous and readily searchable. Some highlights:

https://www.vanguard.com/pdf/ISGQFP.pdf
https://papers.ssrn.com/sol3/papers.cfm ... id=2168768
http://www.hec.unil.ch/agoyal/docs/HireFire_JoF.pdf
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1071
https://jpm.pm-research.com/content/43/4/33
https://papers.ssrn.com/sol3/papers.cfm ... _id=980430

What empirical evidence did the OP provide?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Chase performance all you want.. it doesn't need to matter

Post by RomeoMustDie »

Market cap weighted indexes are performance chasing too if you think about it.

Don't say it too loud around here though.
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Re: Chase performance all you want.. it doesn't need to matter

Post by rascott »

I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
dumbmoney
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Re: Chase performance all you want.. it doesn't need to matter

Post by dumbmoney »

vineviz wrote: Wed Sep 02, 2020 5:42 pm There is a large gap between the average return of mutual funds and the average return of mutual fund investors, and the former is always greater than the latter.
What may be less obvious is that there's a gap between the return of stock investors as a whole (not just fund investors) and the market indexes. The stock market isn't a closed system; money flows in and out.
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Re: Chase performance all you want.. it doesn't need to matter

Post by burritoLover »

rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
That doesn't work either - you can't time when your contrarian investing strategy will begin to pay off which means you are giving up returns until that happens. Yes, you might get lucky at times, but you can't do it consistently to beat a buy and hold strategy.
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ChrisBenn
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Re: Chase performance all you want.. it doesn't need to matter

Post by ChrisBenn »

I found this paper interesting; it looks at factors influencing endowment manager selection, and one of the factors they looked at was pre-selection performance (for actual endowment choices) - so performance chasing
https://papers.ssrn.com/sol3/papers.cfm ... id=3651476

Image

Interesting seeing how reliably that strategy underperformed.
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

Steve Reading wrote: Wed Sep 02, 2020 8:56 pm
langlands wrote: Wed Sep 02, 2020 5:47 pm If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.

Also, that article leaves until the very end and your misleading post neglects to mention that that "fired" "hired" bar chart ignores survivorship bias. Taking that into account, "hired" and "fired" have very similar future performance (as one would expect). That article in fact vindicates OP's point.
Haha I love that. Obviously, you bring up an excellent point that, as a fundamental investor who does not believe one can time the market consistently, have struggled with.

My solution? I believe performance chasing offers lower expected returns. And the opposite (buying out-of-flavor, cheap assets) offers a higher expected return than the market. But of course, nothing reliable for the exact reasons you give. So I agree with you: any BH that says it is very unlikely to beat the market long-term, that then also says it's very easy to consistently underperform it doing X (ex: performance chasing) is obviously being inconsistent.


I do disagree with OP though. Most shouldn't chase performance NOR higher expected returns (the opposite of performance chasing). Most are probably best with the neutral, market portfolio. Just my opinion.
Heh, thanks.

Regarding performance chasing vs. value investing though, they're not exactly opposites are they? Imagine if the P/E ratio of SCV gets ludicrously low. Then value starts outperforming for 2-3 years and the P/E differential between value and growth narrows a bit. Presumably you'll still stick with SCV as long as you still think it's a good value proposition right (pun intended)? In other words, performance chasing is about something technical- path trajectory of stock price movement in the recent past. Value investing is about something fundamental that doesn't depend on the past. A value investor should be able to decide whether or not to invest based on today's price and fundamentals. Basically, I think I'm just making the point that momentum and value are both factors and although negatively correlated, the correlation isn't -1. In fact, since the correlation is negative, it always seemed to me that momentum and value tilts would be great complements in a portfolio. Not sure why that combo isn't more popular.
rascott
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Re: Chase performance all you want.. it doesn't need to matter

Post by rascott »

burritoLover wrote: Wed Sep 02, 2020 9:28 pm
rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
That doesn't work either - you can't time when your contrarian investing strategy will begin to pay off which means you are giving up returns until that happens. Yes, you might get lucky at times, but you can't do it consistently to beat a buy and hold strategy.
That doesn't make sense either..... if you were take the 100% opposite equity class position of the performance chaser, one of you is going to beat the market, one is going to trail (ignoring fees).

Lets just say something as simple as buying large cap growth vs large cap value index based upon how they did over the last 12 months.


So either performance/ momentum buying works.. . Or the opposite side of it works. They can't both NOT work.

If it's totally random, then mathematically it should not matter which side you take (assuming you don't ever change your strategy).

But if buying the hot hand is a loser on average, over time.... then buying the cold hand should be a winner....
Last edited by rascott on Wed Sep 02, 2020 9:37 pm, edited 1 time in total.
langlands
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

ChrisBenn wrote: Wed Sep 02, 2020 9:29 pm I found this paper interesting; it looks at factors influencing endowment manager selection, and one of the factors they looked at was pre-selection performance (for actual endowment choices) - so performance chasing
https://papers.ssrn.com/sol3/papers.cfm ... id=3651476

Image

Interesting seeing how reliably that strategy underperformed.
This shows the well known phenomenon of reversion to the mean. Note that the after-hiring performance is not that different from zero (I suspect they are all slightly negative because of trading costs and fees, i.e. they trade too much). This would be noteworthy if the managers had significant negative performance, which isn't shown here. Again, this is further evidence that the selected "superstar" managers are no different from other managers. Not that they are reliably worse.
Last edited by langlands on Wed Sep 02, 2020 9:42 pm, edited 3 times in total.
ChrisBenn
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Re: Chase performance all you want.. it doesn't need to matter

Post by ChrisBenn »

rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
Is it always an equivalent binary choice though? Compare going long a stock vs shorting it; the latter is typically much less efficient. Sure, with various derivatives the gap can close in some cases, but not all.

And then the binary part. If a manager who has outperformed now has a portfolio of 20 stocks at various weights how exactly to you take the "other side of that" (remembering it's only underperformance vs some benchmark, still could be positive return). And many times the benchmark is only known after the fact (average of all funds in a category) - precluding long/short plays.

So I think reality makes the "take the other side" notion difficult to impossibly to reliably execute.
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Re: Chase performance all you want.. it doesn't need to matter

Post by rascott »

ChrisBenn wrote: Wed Sep 02, 2020 9:38 pm
rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
Is it always an equivalent binary choice though? Compare going long a stock vs shorting it; the latter is typically much less efficient. Sure, with various derivatives the gap can close in some cases, but not all.

And then the binary part. If a manager who has outperformed now has a portfolio of 20 stocks at various weights how exactly to you take the "other side of that" (remembering it's only underperformance vs some benchmark, still could be positive return). And many times the benchmark is only known after the fact (average of all funds in a category) - precluding long/short plays.

So I think reality makes the "take the other side" notion difficult to impossibly to reliably execute.

I'm ignoring active mgmt and high fee funds. Strictly looking at passive, low cost index funds (style, size, sector, whatever that may be).

For simplicity sake. The Russell 1000 growth vs Value indexes.
Last edited by rascott on Wed Sep 02, 2020 9:42 pm, edited 1 time in total.
langlands
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

ChrisBenn wrote: Wed Sep 02, 2020 9:38 pm
rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
Is it always an equivalent binary choice though? Compare going long a stock vs shorting it; the latter is typically much less efficient. Sure, with various derivatives the gap can close in some cases, but not all.

And then the binary part. If a manager who has outperformed now has a portfolio of 20 stocks at various weights how exactly to you take the "other side of that" (remembering it's only underperformance vs some benchmark, still could be positive return). And many times the benchmark is only known after the fact (average of all funds in a category) - precluding long/short plays.

So I think reality makes the "take the other side" notion difficult to impossibly to reliably execute.
It's not that difficult because most people want to be long the market. Consider the 500 stocks of the S&P 500 to be your benchmark portfolio. To "short" a stock, simply don't include that stock in your portfolio. That's essentially what stock picking is: you are implicitly going long the S&P index and shorting the stocks you don't like by simply not buying them.
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Re: Chase performance all you want.. it doesn't need to matter

Post by rascott »

langlands wrote: Wed Sep 02, 2020 9:40 pm
ChrisBenn wrote: Wed Sep 02, 2020 9:38 pm
rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
Is it always an equivalent binary choice though? Compare going long a stock vs shorting it; the latter is typically much less efficient. Sure, with various derivatives the gap can close in some cases, but not all.

And then the binary part. If a manager who has outperformed now has a portfolio of 20 stocks at various weights how exactly to you take the "other side of that" (remembering it's only underperformance vs some benchmark, still could be positive return). And many times the benchmark is only known after the fact (average of all funds in a category) - precluding long/short plays.

So I think reality makes the "take the other side" notion difficult to impossibly to reliably execute.
It's not that difficult because most people want to be long the market. Consider the 500 stocks of the S&P 500 to be your benchmark portfolio. To "short" a stock, simply don't include that stock in your portfolio. That's essentially what stock picking is: you are implicitly going long the S&P index and shorting the stocks you don't like by simply not buying them.
Bingo. +1
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Re: Chase performance all you want.. it doesn't need to matter

Post by ChrisBenn »

langlands wrote: Wed Sep 02, 2020 9:37 pm
ChrisBenn wrote: Wed Sep 02, 2020 9:29 pm I found this paper interesting; it looks at factors influencing endowment manager selection, and one of the factors they looked at was pre-selection performance (for actual endowment choices) - so performance chasing
https://papers.ssrn.com/sol3/papers.cfm ... id=3651476

Image

Interesting seeing how reliably that strategy underperformed.
This shows the well known phenomenon of reversion to the mean. Note that the after-hiring performance is not statistically different from 0. This would be noteworthy if the managers had statistically significant negative performance, which isn't shown here. Again, this is further evidence that the selected "superstar" managers are no different from other managers. Not that they are reliably worse.

Yeah, that was the conclusion in the paper for that factor (and fair point, I should have said "failed to outperform").

Interestingly they did find a correlation to hiring based on pre-existing relationships and underperformance.
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Re: Chase performance all you want.. it doesn't need to matter

Post by ChrisBenn »

langlands wrote: Wed Sep 02, 2020 9:40 pm
ChrisBenn wrote: Wed Sep 02, 2020 9:38 pm
rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
Is it always an equivalent binary choice though? Compare going long a stock vs shorting it; the latter is typically much less efficient. Sure, with various derivatives the gap can close in some cases, but not all.

And then the binary part. If a manager who has outperformed now has a portfolio of 20 stocks at various weights how exactly to you take the "other side of that" (remembering it's only underperformance vs some benchmark, still could be positive return). And many times the benchmark is only known after the fact (average of all funds in a category) - precluding long/short plays.

So I think reality makes the "take the other side" notion difficult to impossibly to reliably execute.
It's not that difficult because most people want to be long the market. Consider the 500 stocks of the S&P 500 to be your benchmark portfolio. To "short" a stock, simply don't include that stock in your portfolio. That's essentially what stock picking is: you are implicitly going long the S&P index and shorting the stocks you don't like by simply not buying them.
If we reduce it down to a set of binary choices and someone can reliably underperform, then I 100% agree that it's straightforward to inverse that and outperform.

I don't buy that that is the case in reality though. If you have an active fund that holds 20 stocks at various weights, and has previously outperformed (so for the scenario here we expect underperformance eventually), but now simply adjusts the weights of all their holdings how do you take the other side of that? Dropping everything they add to their position on doesn't really seem like an inverse to me.
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

ChrisBenn wrote: Wed Sep 02, 2020 9:49 pm
langlands wrote: Wed Sep 02, 2020 9:40 pm
ChrisBenn wrote: Wed Sep 02, 2020 9:38 pm
rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
Is it always an equivalent binary choice though? Compare going long a stock vs shorting it; the latter is typically much less efficient. Sure, with various derivatives the gap can close in some cases, but not all.

And then the binary part. If a manager who has outperformed now has a portfolio of 20 stocks at various weights how exactly to you take the "other side of that" (remembering it's only underperformance vs some benchmark, still could be positive return). And many times the benchmark is only known after the fact (average of all funds in a category) - precluding long/short plays.

So I think reality makes the "take the other side" notion difficult to impossibly to reliably execute.
It's not that difficult because most people want to be long the market. Consider the 500 stocks of the S&P 500 to be your benchmark portfolio. To "short" a stock, simply don't include that stock in your portfolio. That's essentially what stock picking is: you are implicitly going long the S&P index and shorting the stocks you don't like by simply not buying them.
If we reduce it down to a set of binary choices and someone can reliably underperform, then I 100% agree that it's straightforward to inverse that and outperform.

I don't buy that that is the case in reality though. If you have an active fund that holds 20 stocks at various weights, and has previously outperformed (so for the scenario here we expect underperformance eventually), but now simply adjusts the weights of all their holdings how do you take the other side of that? Dropping everything they add to their position on doesn't really seem like an inverse to me.
I agree that it might be difficult to take the other side of a specific active fund with high turnover.

The scenario I was more thinking about (and I think the OP was too) is the more simple one that pops up all the time on this forum: "Growth seems to be doing well...should I hop on the bandwagon and buy growth and dump my value?" Or "US seems to be doing well...should I hop on the bandwagon and buy US and dump my international?" So pretty simple binary ETF allocations. (A lot of the posts also lean the other way- should I jump in value or international since growth/US is obviously in a bubble.)
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Re: Chase performance all you want.. it doesn't need to matter

Post by burritoLover »

rascott wrote: Wed Sep 02, 2020 9:36 pm
burritoLover wrote: Wed Sep 02, 2020 9:28 pm
rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
That doesn't work either - you can't time when your contrarian investing strategy will begin to pay off which means you are giving up returns until that happens. Yes, you might get lucky at times, but you can't do it consistently to beat a buy and hold strategy.
That doesn't make sense either..... if you were take the 100% opposite equity class position of the performance chaser, one of you is going to beat the market, one is going to trail (ignoring fees).

Lets just say something as simple as buying large cap growth vs large cap value index based upon how they did over the last 12 months.


So either performance/ momentum buying works.. . Or the opposite side of it works. They can't both NOT work.

If it's totally random, then mathematically it should not matter which side you take (assuming you don't ever change your strategy).

But if buying the hot hand is a loser on average, over time.... then buying the cold hand should be a winner....
You are missing the most important point - you have to time when you get in.
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Re: Chase performance all you want.. it doesn't need to matter

Post by Steve Reading »

langlands wrote: Wed Sep 02, 2020 9:32 pm
Steve Reading wrote: Wed Sep 02, 2020 8:56 pm
langlands wrote: Wed Sep 02, 2020 5:47 pm If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.

Also, that article leaves until the very end and your misleading post neglects to mention that that "fired" "hired" bar chart ignores survivorship bias. Taking that into account, "hired" and "fired" have very similar future performance (as one would expect). That article in fact vindicates OP's point.
Haha I love that. Obviously, you bring up an excellent point that, as a fundamental investor who does not believe one can time the market consistently, have struggled with.

My solution? I believe performance chasing offers lower expected returns. And the opposite (buying out-of-flavor, cheap assets) offers a higher expected return than the market. But of course, nothing reliable for the exact reasons you give. So I agree with you: any BH that says it is very unlikely to beat the market long-term, that then also says it's very easy to consistently underperform it doing X (ex: performance chasing) is obviously being inconsistent.


I do disagree with OP though. Most shouldn't chase performance NOR higher expected returns (the opposite of performance chasing). Most are probably best with the neutral, market portfolio. Just my opinion.
Heh, thanks.

Regarding performance chasing vs. value investing though, they're not exactly opposites are they? Imagine if the P/E ratio of SCV gets ludicrously low. Then value starts outperforming for 2-3 years and the P/E differential between value and growth narrows a bit. Presumably you'll still stick with SCV as long as you still think it's a good value proposition right (pun intended)? In other words, performance chasing is about something technical- path trajectory of stock price movement in the recent past. Value investing is about something fundamental that doesn't depend on the past. A value investor should be able to decide whether or not to invest based on today's price and fundamentals. Basically, I think I'm just making the point that momentum and value are both factors and although negatively correlated, the correlation isn't -1. In fact, since the correlation is negative, it always seemed to me that momentum and value tilts would be great complements in a portfolio. Not sure why that combo isn't more popular.
I don't personally think of momentum and performance chasing as the same. Momentum are assets that outperformed peers in the few months (up to a year in some funds). Performance chasing (in my mind any ways) is longer term than that, maybe ~5 years. I think of it as people buying up Japanese equities throughout the 80s. Or people piling in to the Magellan for the 9 years Lynch piloted it. Or this past decade's outperformance of USA stocks.

The reason, in my mind, that performance chasing leads to lower expected returns is because prices are bid up, so you're effectively shorting value, without loading on any positive momentum.

Momentum, on the other hand, has historically worked and worked very strongly. Since vineviz has provided evidence showing performance chasing has not, I think it's clear these aren't close to the same.

AQR has a phrase like "you don't want to be a value investor in a momentum time scale and you don't want to be a momentum investors on a value time scale". When I think of "performance chasing", I think of being a momentum investor in value time scales, so to speak.
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langlands
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Re: Chase performance all you want.. it doesn't need to matter

Post by langlands »

Steve Reading wrote: Wed Sep 02, 2020 10:21 pm
langlands wrote: Wed Sep 02, 2020 9:32 pm
Steve Reading wrote: Wed Sep 02, 2020 8:56 pm
langlands wrote: Wed Sep 02, 2020 5:47 pm If it's possible to reliably underperform the market (while staying fully invested as OP suggests), why isn't it possible to reliably beat the market?
Depending on how you implement "performance chasing," it can be synonymous with momentum investing.

Also, that article leaves until the very end and your misleading post neglects to mention that that "fired" "hired" bar chart ignores survivorship bias. Taking that into account, "hired" and "fired" have very similar future performance (as one would expect). That article in fact vindicates OP's point.
Haha I love that. Obviously, you bring up an excellent point that, as a fundamental investor who does not believe one can time the market consistently, have struggled with.

My solution? I believe performance chasing offers lower expected returns. And the opposite (buying out-of-flavor, cheap assets) offers a higher expected return than the market. But of course, nothing reliable for the exact reasons you give. So I agree with you: any BH that says it is very unlikely to beat the market long-term, that then also says it's very easy to consistently underperform it doing X (ex: performance chasing) is obviously being inconsistent.


I do disagree with OP though. Most shouldn't chase performance NOR higher expected returns (the opposite of performance chasing). Most are probably best with the neutral, market portfolio. Just my opinion.
Heh, thanks.

Regarding performance chasing vs. value investing though, they're not exactly opposites are they? Imagine if the P/E ratio of SCV gets ludicrously low. Then value starts outperforming for 2-3 years and the P/E differential between value and growth narrows a bit. Presumably you'll still stick with SCV as long as you still think it's a good value proposition right (pun intended)? In other words, performance chasing is about something technical- path trajectory of stock price movement in the recent past. Value investing is about something fundamental that doesn't depend on the past. A value investor should be able to decide whether or not to invest based on today's price and fundamentals. Basically, I think I'm just making the point that momentum and value are both factors and although negatively correlated, the correlation isn't -1. In fact, since the correlation is negative, it always seemed to me that momentum and value tilts would be great complements in a portfolio. Not sure why that combo isn't more popular.
I don't personally think of momentum and performance chasing as the same. Momentum are assets that outperformed peers in the few months (up to a year in some funds). Performance chasing (in my mind any ways) is longer term than that, maybe ~5 years. I think of it as people buying up Japanese equities throughout the 80s. Or people piling in to the Magellan for the 9 years Lynch piloted it. Or this past decade's outperformance of USA stocks.

The reason, in my mind, that performance chasing leads to lower expected returns is because prices are bid up, so you're effectively shorting value, without loading on any positive momentum.

Momentum, on the other hand, has historically worked and worked very strongly. Since vineviz has provided evidence showing performance chasing has not, I think it's clear these aren't close to the same.

AQR has a phrase like "you don't want to be a value investor in a momentum time scale and you don't want to be a momentum investors on a value time scale". When I think of "performance chasing", I think of being a momentum investor in value time scales, so to speak.
Cool, that makes sense. There's a certain elegance to this momentum at multiple time scales thinking, almost reminds me of Elliot wave theory :twisted:. From what I understand, there is also a little bit of a mean-reversion effect at the scale of one week. Makes you wonder if there is again a momentum effect on the scale of 50 years or centuries...guess we'll need to wait a million years to collect enough data for that.

About vineviz's evidence though, first it's about outperformance of various mutual fund managers, which is very different from outperformance of individual stocks (which is what the Fama-French momentum factor is about). Second, he was actually talking about outperformance of managers on the scale of 1 year (i.e. predicting outperformance for the next year based on the previous year), so not the 5-10 year scale that you consider appropriate for performance chasing. In other words, the data seem to show that "momentum for managers" doesn't exist (crucially, it doesn't have a negative premium, it's essentially zero).
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Re: Chase performance all you want.. it doesn't need to matter

Post by rascott »

burritoLover wrote: Wed Sep 02, 2020 10:14 pm
rascott wrote: Wed Sep 02, 2020 9:36 pm
burritoLover wrote: Wed Sep 02, 2020 9:28 pm
rascott wrote: Wed Sep 02, 2020 9:22 pm I think this discussion is getting confused a bit.

If we agree that performance chasing is more likely going to trail the market over time.. . Than the obvious flip side is that some type of "buying the dogs" would have a greater chance of outperforming the market.

This is like some type of negative momentum strategy.
That doesn't work either - you can't time when your contrarian investing strategy will begin to pay off which means you are giving up returns until that happens. Yes, you might get lucky at times, but you can't do it consistently to beat a buy and hold strategy.
That doesn't make sense either..... if you were take the 100% opposite equity class position of the performance chaser, one of you is going to beat the market, one is going to trail (ignoring fees).

Lets just say something as simple as buying large cap growth vs large cap value index based upon how they did over the last 12 months.


So either performance/ momentum buying works.. . Or the opposite side of it works. They can't both NOT work.

If it's totally random, then mathematically it should not matter which side you take (assuming you don't ever change your strategy).

But if buying the hot hand is a loser on average, over time.... then buying the cold hand should be a winner....
You are missing the most important point - you have to time when you get in.

Not if using some systemic method.. such as I described. Dual momentum, or some offshoot of it. It's a strategy used by at least one prominent poster here.
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Re: Chase performance all you want.. it doesn't need to matter

Post by willthrill81 »

I don't believe that we can definitively say that the reason for the supposed behavior gap, which may be non-existent, is strictly due to performance chasing. It's rare that such complicated phenomena can be totally explained with a single factor.

Since we now know that momentum is not only a factor every bit as relevant as growth/value and size and possibly the most significant factor of all, I don't readily see how all activities labeled 'performance chasing' could so reliably lead to underperformance unless the momentum was inverse to future performance, which has not been the case at all. Winners tend to keep winning, and losers tend to keep losing.

But even if it were true that (1) there is a behavior gap whereby individual investors reliably underperform the market and (2) this gap was wholly due to performance chasing, then it should be comparatively easy to outperform the market by taking the inverse position of performance chasing individual investors. If that isn't possible, then there is a breakdown somewhere in the theory.
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Re: Chase performance all you want.. it doesn't need to matter

Post by 2pedals »

You should stop chasing performance and start living your life :P
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Financologist
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Re: Chase performance all you want.. it doesn't need to matter

Post by Financologist »

vineviz wrote: Wed Sep 02, 2020 9:03 pm
langlands wrote: Wed Sep 02, 2020 7:41 pm Decades of research and you decide to post as your representative an article that argues against your position?
As I said, the evidence is voluminous and readily searchable. Some highlights:

https://www.vanguard.com/pdf/ISGQFP.pdf
https://papers.ssrn.com/sol3/papers.cfm ... id=2168768
http://www.hec.unil.ch/agoyal/docs/HireFire_JoF.pdf
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1071
https://jpm.pm-research.com/content/43/4/33
https://papers.ssrn.com/sol3/papers.cfm ... _id=980430

What empirical evidence did the OP provide?
I am proposing that it doesn't matter whether you're performance-chasing, buying dogs or pursuing any other nonsensical strategy of your choosing.. as long as you meet the conditions I listed, then pursuit of any of these strategies shouldn't put you at any special advantage or disadvantage in terms of achieving market-comparable risk-adjusted returns. If you can offer any evidence that contradicts this hypothesis I would be very interested.

Thanks
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Re: Chase performance all you want.. it doesn't need to matter

Post by vineviz »

Financologist wrote: Thu Sep 03, 2020 12:32 am
vineviz wrote: Wed Sep 02, 2020 9:03 pm
langlands wrote: Wed Sep 02, 2020 7:41 pm Decades of research and you decide to post as your representative an article that argues against your position?
As I said, the evidence is voluminous and readily searchable. Some highlights:

https://www.vanguard.com/pdf/ISGQFP.pdf
https://papers.ssrn.com/sol3/papers.cfm ... id=2168768
http://www.hec.unil.ch/agoyal/docs/HireFire_JoF.pdf
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1071
https://jpm.pm-research.com/content/43/4/33
https://papers.ssrn.com/sol3/papers.cfm ... _id=980430

What empirical evidence did the OP provide?
I am proposing that it doesn't matter whether you're performance-chasing, buying dogs or pursuing any other nonsensical strategy of your choosing.. as long as you meet the conditions I listed, then pursuit of any of these strategies shouldn't put you at any special advantage or disadvantage in terms of achieving market-comparable risk-adjusted returns. If you can offer any evidence that contradicts this hypothesis I would be very interested.

Thanks
At the risk of being repetitious, you can see that I just provided you with a small sample of the immense amount of evidence that performance chasing DOES put the investor at a disadvantage.

Right?

If you can point to even one paper or study that lays out the evidence that supports your hypothesis, I’d love to see it. If you’re making a claim, support it with data. If you’re asking a question, 60 years of economic research has already produced the answer, IMHO.
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YRT70
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Joined: Sat Apr 27, 2019 8:51 am

Re: Chase performance all you want.. it doesn't need to matter

Post by YRT70 »

vineviz wrote: Wed Sep 02, 2020 9:03 pm
langlands wrote: Wed Sep 02, 2020 7:41 pm Decades of research and you decide to post as your representative an article that argues against your position?
As I said, the evidence is voluminous and readily searchable. Some highlights:

https://www.vanguard.com/pdf/ISGQFP.pdf
https://papers.ssrn.com/sol3/papers.cfm ... id=2168768
http://www.hec.unil.ch/agoyal/docs/HireFire_JoF.pdf
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1071
https://jpm.pm-research.com/content/43/4/33
https://papers.ssrn.com/sol3/papers.cfm ... _id=980430

What empirical evidence did the OP provide?
Thank you for your patience and for providing the appropriate rational answer, as usual.
rascott
Posts: 2382
Joined: Wed Apr 15, 2015 10:53 am

Re: Chase performance all you want.. it doesn't need to matter

Post by rascott »

vineviz wrote: Thu Sep 03, 2020 6:17 am
Financologist wrote: Thu Sep 03, 2020 12:32 am
vineviz wrote: Wed Sep 02, 2020 9:03 pm
langlands wrote: Wed Sep 02, 2020 7:41 pm Decades of research and you decide to post as your representative an article that argues against your position?
As I said, the evidence is voluminous and readily searchable. Some highlights:

https://www.vanguard.com/pdf/ISGQFP.pdf
https://papers.ssrn.com/sol3/papers.cfm ... id=2168768
http://www.hec.unil.ch/agoyal/docs/HireFire_JoF.pdf
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1071
https://jpm.pm-research.com/content/43/4/33
https://papers.ssrn.com/sol3/papers.cfm ... _id=980430

What empirical evidence did the OP provide?
I am proposing that it doesn't matter whether you're performance-chasing, buying dogs or pursuing any other nonsensical strategy of your choosing.. as long as you meet the conditions I listed, then pursuit of any of these strategies shouldn't put you at any special advantage or disadvantage in terms of achieving market-comparable risk-adjusted returns. If you can offer any evidence that contradicts this hypothesis I would be very interested.

Thanks
At the risk of being repetitious, you can see that I just provided you with a small sample of the immense amount of evidence that performance chasing DOES put the investor at a disadvantage.

Right?

If you can point to even one paper or study that lays out the evidence that supports your hypothesis, I’d love to see it. If you’re making a claim, support it with data. If you’re asking a question, 60 years of economic research has already produced the answer, IMHO.

Can you please comment on the flip side of it then? If performance chasing puts one at a disadvantage.. then it would go without saying that taking the opposite side trade of the performance chaser would put one at an advantage.

Is that your position?
Topic Author
Financologist
Posts: 245
Joined: Wed Jan 01, 2020 11:16 pm

Re: Chase performance all you want.. it doesn't need to matter

Post by Financologist »

vineviz wrote: Thu Sep 03, 2020 6:17 am
Financologist wrote: Thu Sep 03, 2020 12:32 am
vineviz wrote: Wed Sep 02, 2020 9:03 pm
langlands wrote: Wed Sep 02, 2020 7:41 pm Decades of research and you decide to post as your representative an article that argues against your position?
As I said, the evidence is voluminous and readily searchable. Some highlights:

https://www.vanguard.com/pdf/ISGQFP.pdf
https://papers.ssrn.com/sol3/papers.cfm ... id=2168768
http://www.hec.unil.ch/agoyal/docs/HireFire_JoF.pdf
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1071
https://jpm.pm-research.com/content/43/4/33
https://papers.ssrn.com/sol3/papers.cfm ... _id=980430

What empirical evidence did the OP provide?
I am proposing that it doesn't matter whether you're performance-chasing, buying dogs or pursuing any other nonsensical strategy of your choosing.. as long as you meet the conditions I listed, then pursuit of any of these strategies shouldn't put you at any special advantage or disadvantage in terms of achieving market-comparable risk-adjusted returns. If you can offer any evidence that contradicts this hypothesis I would be very interested.

Thanks
At the risk of being repetitious, you can see that I just provided you with a small sample of the immense amount of evidence that performance chasing DOES put the investor at a disadvantage.

Right?

If you can point to even one paper or study that lays out the evidence that supports your hypothesis, I’d love to see it. If you’re making a claim, support it with data. If you’re asking a question, 60 years of economic research has already produced the answer, IMHO.
Vineviz,

I perused the "evidence" you offered and am unsatisfied. Some of the materials address chasing top performing funds and managers. The Vanguard study cherry picks one 10 year period and concludes investors should do precisely the thing that is most profitable for the incumbent brokerage (I love Vanguard, but cmon).

I would like to see a shred of evidence that disproves my hypothesis. Anyone who can produce the evidence must surely believe herself to be in possession of mystical (and mythical?) alpha (hint: I won't be buying any snake oil today).
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