waveman

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The aducanumab approval

There is a whole hierarchy of incentives to medical people at different levels in the system. 

At the bottom
1. Free samples
2. Free education. 
3. Cute/good looking drug reps...

The free education comes with a nice meal and convivial company. You just need to sit through the drug company propaganda, which is duly accredited as good for mandatory training hours. What happens if your prescribing fails to conform to the desired profile? You don't get invited to the next "free" training. 

At the top (influential professors):
1. Funding for studies 
2. "Speaking fees". 
3. "Consultancy fees"

As with the lucrative "speaking fees" paid to ex politicians and the highly paid and often made-up jobs provided to ex-politicians and bureaucrats and their families, everyone knows the score. If you make trouble the "speaking fees" and the like dry up. Completely by coincidence of course. 

The aducanumab approval

I have begun to think that the biggest factor in a drug being approved is drug company sponsorship, and thus the potential for drug company profits. Patentability appears to be a big factor. 

See "regulatory capture". 

Deliberately Vague Language is Bullshit

"Fit" is vaguer than BMI...

Which is in every way less precise and useful than body shape index (ABSI). BMI fails for: athletes and strong people, people over 50, smokers and ex-smokers, skinny-fat people; in fact it fails for most people. Maximum longevity is in the (mildly) overweight category of BMI.

ABSI predicts heart disease mortality far better than blood tests. BMI is not even in the race except at extremes.

This is a classic case of medicine's common practice of  persisting with inferior metrics and practices. My suspicion is that this is a result of the excessive power of "great men" and authorities within the field. 

See refs at the end of this https://www.fatcalc.com/absi

Sympathy for the ferryman of Hades, or why we should keep Trump off Twitter

Wireheading is expanding rapidly.

At first it was drugs, with packaging and delivery carefully designed to maximize addictiveness.
 

Then gambling,  social media. 

More recently...

Stock brokers are increasingly leveraging the well-tested wireheading techniques used by casinos to make their customers into gambling addicts.

Why quantitative finance is so hard

Quants are bottlenecked by training data entropy.

Very true and often a big surprise to people. This is one reason people focus on high frequency trades - more data.

> diversification ... free lunch

Mostly true, but at the risk of pedantry it is not quite free. It is quite hard to find 10 good trades and far harder to find 100. Diversification can dilute alpha.

> World conditions change. Competing actors respond to the historical data.

Imagine how hard physics would be if the laws of physics changed whenever you got close the theory of everything. Or if mostly when theories were published they stopped working.

Best empirical evidence on better than SP500 investment returns?

Hmmm in order of certainty

1. Save and invest more = more total returns. 
2. Diversification is the only free lunch in finance.
3. A cautious approach to tilting investments in favour of various factors has a lot of evidence around it. See e.g. this blog https://alphaarchitect.com/alpha-architect-white-papers/
4. Strict adherence to dollar cost averaging. Much harder to do than it looks.

Also all the personal finance rules apply - avoid unprofitable debt, take out insurance. avoid financial catastrophes like divorce, maximize marketable job skills, save hard.

In order of certainty, here are the bad ideas

1. Thinking that you can easily beat the market. Maybe with 70 hour weeks for many years... read hundreds of books and papers... otherwise assume you have negative skill to the tune of 4-6% per annum. Also going into the markets with psychological weaknesses unresolved and/or cognitive and emotional biases not dealt with - the markets have ways to find and exploit them all. 
2. Investing in high cost funds based on recent outperformance.
3. Suddenly deciding to invest it all on stocks "for the long run" after a period of outperformance.

What weird beliefs do you have?

I had some exposure to this issue a couple of years ago. I got a speeding ticket, which eventually I got off of. 

During this process I documented the government making 26 different errors in all. Starting with the speed limit sign that did not comply with their own standards for speed limit signs in 3 different ways....

So I suspect that huge numbers of things go wrong in government all the time and are not noticed. What % of prisoners get checked as required? What fraction of video cameras are out of order at any given time? So the argument "Aha! The camera just 'happened' to be out of order!" is not as compelling to me as you might expect.

Tho' it would not be surprising that JE was taken out. He seems to have operated a blackmail operation in part and no doubt a few people breathed a sigh of relief on hearing of his fate. But I don't know.

What weird beliefs do you have?

Good post.

I have wondered about this myself actually. 

The sad thing is that if we mess it up, there is not enough time before the sun renders multicellular life untenable on earth to restore fossil fuels. So for earth we are the last roll of the dice.

Are there opportunities for small investors unavailable to big ones?

Can you describe to me a concrete trade which looks like: 20% return on $1000. (All the ones I can think of tend to be just as amenable to professionals). The other issue of playing in the "micro-investment" pool, is typically liquidity is much lower, so costs are higher.

Here is one example. About a month ago I bought the stock ASK:DSK. The daily trade volume is $AUD100-200k. That made it easy for me to buy $10k worth. It is now up 48%. My slippage was minimal - I was able to buy it all at the offer or better with no market impact. 

For someone with $10B FUM keeping the portfolio size to 100 stocks would mean that assuming they only bought 10% of the daily trades per day it would take them 3-4 years to buy in and a similar time to get out of the trade. So this stock, which is by no means unusually small, having a market cap larger than 2/3 of the stocks on the ASX, is out of reach for the big guys.

https://au.finance.yahoo.com/chart/DSK.AX

Are there opportunities for small investors unavailable to big ones?

I think the investment floor argument here is actually understated. 

Successful investors rapidly find themselves in a world where the vast majority of stocks are too small to buy. Try putting on a multi-million dollar position on for a stock that trades $10k/day on average.

Even index funds struggle with this. There are "small cap[italization]" index funds that have a median firm size of well over $1.6 Billion dollars larger than the vast majority of stocks. 

This is reflected also in research showing that fund managers do not exploit the small cap outperformance anomaly nor the fact that other anomalies (like value) are far more powerful in small cap stocks.

You see this reflected also in the reversion to the mean of fund performance as they get larger.

Other disadvantages of the smart money are documented in the paper "the limits of arbitrage" https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.1997.tb03807.x 

One issue is that fund managers, who control most of the investment funds, live and die by short term performance and cannot implement any strategy that underperforms the relevant index by 6 months or so. This is why fund managers typically do their mean variance optimization on tracking error, not on total returns. 

They are in effect only as smart and well informed as their investors. See the 2018 paper "What Do Mutual Fund Investors Really Care About?" for some information on this.

The other main issue is that mispricings can get far worse before they are resolved. This makes it very hard to bet against them. Several people who bet against the toxic waste (subprime) mortgage trusts before 2008 lost a lot of money and were forced out of the trade. See the paper "Toil and Trouble, Don’t Get Burned Shorting Bubbles" by Aaron Brown et al 

> After analyzing the data and speaking with traders who actively researched
subprime mortgages we highlight latent risks that were associated with shorting subprime
mortgages. These latent risks help explain why many smart, informed traders decided not
to short subprime mortgages ...

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3782759

Having said that it is actually very hard to beat indexing. People should assume this is a serious and difficult endevour requiring lots of hard work on learning the field and on their own psychology.

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