Hacker News Reader

Comment by chollida1 | Hacker News Reader

Great post.

This is something that I think everyone would say they understand if you ask them and yet its something that everyone will discard at some point in their lives.

When I leave the world of finance I'll be ok with forgetting almost everything I've learned with the exception of one principle.....

Always hedge

Cheap prediction 3 things that are in an unsustainable bubble that will pop in the next 3 years.

1) Hedge funds, way to much money since 2008, huge bull market since 2008 and the sell side closing down their prop trading businesses since 2008 created an unsustainable number of funds.

2) US equity markets, see above

3) Twitter, people will become tired of making excuses for their huge P/E ratio and move their money to somewhere else that will actually make them a return, celebrities will become fickle and move onto the next big communication network.

View on HN

"The market can remain irrational longer than you can remain solvent" - John Maynard Keynes

> Twitter, people will become tired of making excuses for their huge P/E ratio and move their money to somewhere else that will actually make them a return, celebrities will become fickle and move onto the next big communication network.

Twitter wont die, it will get bought by someone (probably Google). Twitter is perfect for celebrities, they don't need another network. It's the common person that doesn't have much use for it.

> It's the common person that doesn't have much use for it.

As a common person myself, I disagree. I've used Twitter twice to complain at companies who were ignoring me through their normal support channels. /s

In all seriousness, that's what I find Twitter good for. No way in hell can TWTR make money of my pattern of use, though.

Yeah, and once Twitter is the dominant way to complain at companies, it will stop being useful...

Exactly. Put blue theme on the update stream on Google+, restrict text to 140, and call it the next version of Twitter. Collect accolades.

AFTER that happens, announce the migration of the Google+ base to "Twitter."

I think we are in agreement.

Since I was talking about the stock market I assumed it was obvious that I was talking about Twitter the corporation that won't cost in 3 years.

Twitter owns Periscope, which has much greater potential IMO. It is amazing to drop down into someone's life from far away and talk in real time.

Twitter is perfect for celebrities, they don't need another network.

They never needed twitter. The relationship is largely the other way around.

One thing I don't get about "hedging": If you hedge, how do you make profit? While you get downside on your one bet and upside on other, things cancel out, right? Profits seems to be proportional to risk. Hedging reduces risk and hence reduces profits. I've heard "always hedge" lot of time but being naive in this area, I want to know how do professionals hedge while still bringing in significant profits.

There's this joke in trading: "You can't make money hedging." Of course, not losing $1 is the same as making $1. So to answer your question, you don't make money hedging, instead you prevent yourself from losing it. Hedging is to lock in gains you've already made.

When people say "always hedge", what they really mean is be diversified.

While it is of course a vast field with much complication etc etc, here's a simple one.

It does rely on you being right, but that's always true.

If you think company X is going to do well compared to some benchmark, you go long on X and short on the benchmark. As long as you were right (i.e. X does do better than the benchmark) you'll make money no matter how they actually do. If X drops 50% and the benchmark drops 90%, you've made money. If X rises 20% and the benchmark rises 15%, you've made money.

You don't, but hedge funds don't just do hedging. Hedge funds can use basically any investment strategy that they want to. The only common feature that they all share is obscenely high fees.

well hedging could lower your expected value but increase your sharpe ratio (i.e lower the variance relative to reward).

Say I wanted to put my reputation or money where my mouth is with some predictions like this of my own. Are there any online prediction markets that support this?

This was the idea behind Intrade before it folded, no? I remember hearing about it in the popular media all the time during the 2012 US presidential election. Has anything like it arisen in its place?

This soon:

http://www.augur.net/

For the U.S. presidential race, there is the Iowa Electronic market:

http://tippie.uiowa.edu/iem/markets/pres16.html

Well, when it comes to US equity markets, you can just invest in them (or against them).

From what I've read, shorting stuff is complicated.

What about a site, say the web 2.0 version of longbets.org, where users can make predictions just using karma (or HN points) and user results are published? Does anything like that exist?

Instead of short selling an equity (which is indeed complicated not so much in its difficulty but in its potentially unlimited downside), you can buy a put option. For the cost of the option you receive the right (not the obligation) to sell a stock at a specified price. If the stock price then goes down below that that price, simply buy the stock at the lower market price then use your put option to sell it at the higher price. The downside is limited to the cost of the option.

It's not. It's right next to the 'buy/long' field/dropdown for most online brokers.

The broker might make you jump through a trivial hoop to get a margin account and fax in an additional agreement. Stock short account you just had to request and to get option shorting my broker, TD Waterhouse, had a simple Q&A quiz to make sure you understood the risk profiles of option shorting.

Betfair if you put money in the UK.

Reply on news.ycombinator.com