GM31: The Art of Volatility Investing ft. Dave Dredge
Top Traders Unplugged
Niels Kaastrup-Larsen
4.8 • 670 Ratings
🗓️ 21 December 2022
⏱️ 80 minutes
🧾️ Download transcript
Summary
Today, Dave Dredge, CIO at Convex Strategies, returns for a conversation on volatility investing and why he believes the 60/40 portfolio is wrong. We discuss why big pension funds have been suffering major losses and what Dave means by living in a “Sharpe World”, self-organized criticality and how Central Banks have been handling inflation, the relationship between volatility and liquidity and importance of understanding the timeframe that you are trading within. We also discuss how Dave uses asymmetry to stay prepared for the future and the pointlessness of forecasting, how constructing an investment portfolio is like a football match and how Dave’s racing car analogy can help you become a better investor, cheap vs. expensive volatility and the importance of convexity, what the future might hold for volatility and much more.
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Episode TimeStamps:
00:00 - Intro
03:00 - About Dave and his work
06:04 - Are big pension funds failing?
11:21 - A fragile world
19:54 - How Dave thinks about liquidity
25:20 - What does cheap actually mean?
34:23 - What might be next for volatility
41:43 - The next Korean ship builder?
46:19 - Is forecasting pointless?
51:00 - Improve your convexity = improve your life
59:37 -
Transcript
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| 0:00.0 | The ball spins 96% of the time in the middle of the pitch. |
| 0:11.8 | It's only the two two percentiles that it spins in the two penalty boxes that actually |
| 0:16.0 | matter. |
| 0:16.8 | It's what happens there that matters. |
| 0:19.5 | And so our whole premise is, you know, you construct an investment portfolio based on what you don't know. |
| 0:26.2 | So you make it so that it performs its best in the extremes. |
| 0:31.8 | Because making it so that it performs its best in the expectation means you won't perform very well at all. And so that's |
| 0:39.1 | sort of the point of that piece. It's not predicting what you think you know. It's constructing |
| 0:44.7 | resilience for what you don't know. Imagine spending an hour with the world's greatest |
| 0:51.8 | traders. Imagine learning from their experiences, their |
| 0:55.2 | successes, and their failures. Imagine no more. Welcome to Top Traders Unplugged, the place |
| 1:02.2 | where you can learn from the best hedge fund managers in the world so you can take your manager, |
| 1:06.6 | due diligence, or investment career to the next level. Before we begin today's conversation, |
| 1:12.0 | remember to keep two things in mind. |
| 1:14.0 | All the discussion we'll have about investment performance |
| 1:16.4 | is about the past, |
| 1:17.7 | and past performance does not guarantee |
| 1:19.6 | or even infer anything about future performance. |
| 1:22.8 | Also understand that there's a significant risk |
| 1:24.8 | of financial loss with all investment strategies, |
| 1:27.0 | and you need to request and understand the specific risks from the investment manager about their |
| 1:32.1 | product before you make investment decisions. Here's your host, veteran hedge fund manager, |
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