What posts on finance would your find helpful or interesting?

Oh nice, I can definitely write about this. This is basically what I do all day.

Hmm, so I'm realizing I can't write much about this without revealing / implying certain key information about how we view things at my hedge fund. :/

But I found this document, which is pretty sane and goes into some details on this and other basic topics: https://bigquant.com/community/uploads/default/original/3X/7/d/7d3a0a5a4f0f2fbfd87b2c6e70037dd3c8f48e2c.pdf

One thing I'd really recommend to get started is to open a demo (or "paper") account with a stockbroker. Get familiar with the mechanics of actually ordering trades with their software. Then you can experiment with what you're learning. Don't worry about blowing up your account, because it's not real money. You can just reset it.

Leverage is the ratio of the amount of the investment you control to the amount of money you need to control it. Buying the investment outright is 1x leverage.

Wise use of leverage is probably required for a good return. I talked about this a bit in How to Lose a Fair Game. [LW · GW]

Leveraging up means you are increasing the ratio, which usually means you are borrowing money to buy investments.

The common way to do it is a margin account. You buy stock, and use the stock as collateral for a loan from your broker, which you use to buy more stock (not necessarily the same one). You can profit twice as much from a favorable move, but you also lose twice as much from an unfavorable one. That's 2x leverage, you can use less. The broker also charges interest. The loan is fully collateralized, so if the shares you're putting up lose value, you have to pay back the excess loan. This situation is called a "margin call". You can also get leverage using options or buying shares in a fund that is itself leveraged in some way.

Leveraging down means the opposite, usually you keep some cash in reserve, and keep the ratio of cash to investment value balanced. For example, a portfolio of 50% cash and 50% stock has 0.5x leverage, assuming you keep it balanced as the value of the stock changes.

Short selling means that you borrow shares of stock to sell to someone else. You probably can't do this in a basic account or a retirement account (with some minor exceptions). Your broker will find someone on your behalf. Some stocks are hard to borrow. Your broker might not be able to find enough of them.

You're still on the hook for any dividends and have to compensate the original owner for any dividends they miss. Again, the broker should handle this automatically. If the market price falls, you can then cover your short position for less than you sold it for, which is a profit. The opposite case would be a loss. If you do have a margin account, your broker may also loan your shares to someone else to sell. Some brokers compensate you for this. If your shares are loaned out you still get the dividends, but they don't count as dividends for tax purposes.

What do you mean by "numbers"?

Yeah. I'm in index funds because someone told the London group "here's what it means to get into index funds, here's why it's a good idea, here's how you do it, here's a list of places you can sign up with to get one". I kind of want to dabble a little in stocks and other investments, but I don't know who offers that ability and I haven't looked closely yet.

(My impression is if I was in the US a decent answer would be "Robinhood". And authors here might not know anything UK specific, which is fair enough. But that's the sort of thing I'd find helpful.)

An incomplete list of caveats to Sharpe off the top of my head:

• We can never measure the true Sharpe of a strategy (how it would theoretically perform on average over all time), only the observed Sharpe ratio, which can be radically different, especially for strategies with significant tail risk. There are a wide variety of strategies that might have a very high observed sharpe over a few years, but much lower true Sharpe
• Sharpe typically doesn't measure costs like infrastructure or salaries, just losses to the direct fund. So e.g. you could view working at a company and earning a salary as a financial strategy with a nearly infinite sharpe, but that's not necessarily appealing. There are actually a fair number of hedge funds whose function is more similar to providing services in exchange for relatively guaranteed pay
• High-sharpe strategies are often constrained by capacity. For example, my friend once offered to pay me $51 on Venmo if I gave her $50 in cash, which is a very high return on investment given that the transaction took just a few minutes, but I doubt she would have been willing to do the same thing at a million times the scale. Similarly, there are occasionally investment strategies with very high sharpes that can only handle a relatively small amount of money

Great question! I think a lot about this too, although I don’t have an answer. Regarding EMH though see my other recent posts though.

I don't understand Titan's strategy well enough to know if it would work, but a Sharpe of .77 is totally achievable though various means. It's really not that hard to beat the index [LW · GW] in terms of Sharpe ratio. Diversification really is a free lunch. The S&P 500 is American large caps. You can diversify a lot more than that. That doesn't seem to be what Titan is doing though.

I don't buy the EMH, because alpha exists [LW · GW], but yes, that is what the EMH would imply: you can only outperform due to luck.

If you model an asset price as a random walk with drift, and then try to compute the Sharpe ratios, you will get different answers at different times due to luck. Same process. Could it vary between .77 and .51? Yes. Easily.

One part of the puzzle is that most institutions are limited in what kind of assets they can buy. They are further limited by what kind of risk/return profile their investors are looking for. If you're holding government debt, it's considered pretty safe and has very low volatility. You're not going to lose that much money in any given year (but you also won't make much). For an index fund you could lose or make +/- 20% in any given year. Some institutions just can't tolerate that risk in the sense that it's not their job to take on that much risk.

[I'm not your financial advisor. I don't know your financial situation, and this is not financial advice. Leverage is a double-edged sword. Don't Bet the Farm. [? · GW]]

Depends on what you need it for. 3x ETFs are probably plenty for a basic risk premium portfolio. LEAPS might have more variety, but you have to buy 100 share increments (which makes it harder to balance in a small account), and you have to deal with vega risk and occasional rolling hassle and costs.

Portfolio margin is probably the best way overall. But I haven't seen it available for less than a $100,000 account. You can get almost 2x on an ordinary Reg-T margin account though. Brokers may charge outrageous amounts of interest for margin loans. You can sort of work around this by financing with box spreads.

Outside the US, you can probably get 5x on CFDs. I can't trade them, so I haven't looked into them too much.

Leverage up to 20x is easy to get for Forex (and maybe 50x for the major pairs), because Forex volatility is so low, you need a lot of leverage to bother with it. But the market is mature and efficient enough that I don't recommend trading it without some automation. Grinding out an edge that small is really tedious if you have to do it manually.

Caveat: Articles like this do already exist. It's just that I never thought to seek one out until about yesterday. It's probably better for someone with your experience to write new content rather than to do a new spin on old content, unless you are familiar enough with the "for beginners" content that's out there to have a sense of how it could be improved.

For anybody who's like me, here's a place to start.

What exactly do you mean by door of entry? Like a way to get into the industry? Or start trading yourself?

I've been running one of the world's largest crypto quant hedge funds for the past 3 years. We're still pretty small when you compare us to hedge funds outside of crypto, sure, but it's become less true every month.

There's a number of other authors on LW who have decent qualifications.

After https://www.lesswrong.com/posts/rPe6b7MCxaK8ZzYdC/you-need-more-money?commentId=qESxHMdp7dKjbbEYq this seems to be a second comment by you asserting that specific people have no special knowledge. 

LessWrong brings together a bunch of smart nerds and some of those happen to be Quants who do have special knowledge on finance.