Victor Haghani on Death of Random Walk, and Passive, Buybacks, and LTCM
Episode publishedPodcast: Monetary Matters with Jack Far...Monetary Matters with Jack Farley
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I feel like we could talk about LTCM. We could talk about, I mean, sense Let's some
not do that. That's so boring. I mean, everybody's sick of LTCM.
Yeah, yeah. So what do you think the real lessons are?
You know, I think the biggest lessons are about personal risk taking. The first big lesson has to do with skin in the game. Maybe the next lesson is that running a leverage pool of standalone capital might be a bad business structure. You know, it might be better to do relative value trading within larger institutions where it's a small part of the activity and where it's not exposed to financing risk, etc, from all the counterparties that are funding that activity. So I think those are two things. I think relative value trades tend to have fatter tails than what we call Delta One trades. That
Joined today by Victor Hagani of Elm Wealth. He's the author of The Missing Billionaires, the author of an upcoming book. He'll tell us about that, as well as he was the founding partner of long term capital management. Victor, welcome to Monetary Matters. Thanks very much, Jack. Co author,
by the way, with my partner James White on that book and the forthcoming one too.
Tell us about who killed the random walk. What is the random walk? What is the work that you've been doing that shines new light on it, and why does it matter?
Oh, thanks for asking that, Jack. This is something I haven't I don't think I've talked on any really publicly about this, except we've been talking at a number of seminars about this paper. It's a piece of research that we've been working on for three or four years and it just got accepted into the Journal of Investment Management. It's available as a working draft on SSRN. And basically, the starting point is that everybody who follows the stock market sees a lot of behavior in the stock market that is hard to reconcile with the idea of everybody is a rational, fully informed agent making lo
Go ahead. Well, anyway, so
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