BC TRADING
Saved by @ThomassRichards

1/

Get a cup of coffee.

In this thread, I'll help you understand Geometric Expectations.

 2/

Imagine we have an investment opportunity.

If the investment goes well, we get to double our money.

But if it goes badly, we'll end up losing three fourths of it.

There's a 50/50 chance of either outcome.

The question: is this a good bet or not?
3/

A simple way to approach this question is to calculate the bet's "expectation".

For every $1 we bet, there are 2 possibilities:

1. The lucky case, where we double our money and end up with $2, and

2. The unlucky case, where we lose (3/4)'th to end up with just $0.25.
4/

Each of these outcomes is equally likely.

So, on *average*, every $1 we put in turns into ($2 + $0.25)/2 = $1.125.

This is a *positive* 12.5% return.

Such bets are called *positive expectation* bets. On average, we expect to *make* (rather than *lose*) money on them.
5/

Suppose we could take many turns betting at these odds.

In any one turn, we could of course lose money.

But because our bet has positive expectation, *over time* we expect to make money.
6/

In fact, as we take more and more turns, our chances of making money approach 100%, and our chances of losing money approach 0%.

In this sense, positive expectation bets are *sure things*.

They're "good" bets to make.
7/

For example, suppose we place 100 bets at these odds.

Let's say we bet $1 each time. So, we *put in* $100.

In this case, there's a ~93.34% chance that we'll make money.

And on average, we expect to end up with $112.50 (our +12.5% expected return).
8/

In the scenario above, we did not let our 100 bets *compound*.

We bet the *same* $1 at each turn.

We did not take the winnings from our first turn and roll them into our second, and so on.

But if we did that, our money would grow even faster, right? At +12.5% per turn?
9/

So, if we start with $1, and take 100 turns betting at these odds, rolling over our winnings from each turn to the next, we'll most likely end up with something like $1 * (1.125^100) = ~$130K, right?

That's what compounding $1 at 12.5% a hundred times gets us.
10/

Sadly, no.

If we roll over our winnings 100 times, our chances of making money *drop* to a tiny ~0.04%.

That is, with probability more than 99.95%, we'll end up *losing* money.
11/

How is this possible?

Well, let's think about what happens to our $1 as it goes through this "compounding" process 100 times.

At every "lucky" turn, our wealth gets multiplied by 2 (doubled).

But at every "unlucky" turn, it gets multiplied by 1/4 -- as (3/4)'th is lost.
12/

So, each unlucky turn cancels out 2 lucky turns!

So, if we are to make money overall, the lucky turns will have to outnumber the unlucky turns at least 2 to 1.

That is, we need to get lucky at least twice as often as we get unlucky -- or we'll end up losing money.
13/

The chances of getting lucky that often are pretty slim -- because getting lucky or unlucky is a 50/50 thing.

Over 100 turns, we're most likely to get lucky 50 times and unlucky the other 50 times.

But to make money over 100 turns, we need to get lucky at least 67 times.
14/

So, it all comes down to whether we "roll over" our bets or not.

Without roll over, our expected return is +12.5% per bet.

But with roll over, our expected return per bet turns *negative* -- approaching -29.3% as we take more and more turns.
15/

Key lesson 1: Positive expectation bets, when rolled over, can lead to *negative* expected growth rates!

Each turn may carry a positive expectation. But the compounded effect of many turns can carry a negative expectation.
16/

So, there are really 2 kinds of expectations.

Our normal idea of expectation -- the return we expect to make without roll over -- is called *arithmetic* expectation.

But there's also *geometric* expectation. This is the return we expect to make with roll over.
17/

And as our example above showed, a bet can carry positive arithmetic expectation but negative geometric expectation.
18/

Let's take a general bet -- and derive formulas for its arithmetic and geometric expectations.

In general, a bet can have N possible outcomes:

With probability p_1, our money gets multiplied by f_1.

With probability p_2, it gets multiplied by f_2.

And so on.

Like so:
19/

Here are the formulas for the arithmetic and geometric expectations of such bets, along with a couple of examples:
20/

Key lesson 2: Even if a bet has positive arithmetic expectation, it may be a bad idea to roll it over repeatedly.

For roll over to be a good idea, the bet must have positive *geometric* expectation.
21/

The famous Kelly Criterion is a strategy that transforms an *arithmetic* advantage into a *geometric* one.

The idea is: if a bet has positive arithmetic expectation but negative geometric expectation, we only roll over *part* of our winnings, not *all* of them.
22/

For our "double or lose three fourths" example above, Kelly would only roll over (1/6)'th of our wealth from each turn into the next turn's bet.

This achieves an expected growth rate of +10.4% per turn -- much better than negative 29.3%!

For more: https://t.co/LjuaCg3mGm
23/

Another observation:

Whenever a bet has a non-zero chance of total loss, its geometric expectation is 0.

This is a Russian roulette type situation. Its (arithmetic) expectation may be positive, but if we keep pushing our luck and rolling over, we'll eventually blow up.
24/

To learn more about the origins of geometric expectations, I recommend reading Daniel Bernoulli's paper:

https://t.co/vN6yNvmk9J
25/

But if that's too much for you, here's a wonderful thread by @breakingthemark that summarizes the paper's main ideas: https://t.co/fdCd3X0E9B
26/

I also very much like this article by @TaylorPearsonMe that beautifully ties together many key ideas that come into play in such repeated betting scenarios: ergodicity, antifragility, barbell strategies, the Kelly Criterion, etc.

https://t.co/FHefGhuUWf
27/

And speaking of ergodicity and repeated betting, Prof. Sanjay Bakshi (@Sanjay__Bakshi) has created a wonderful set of slides exploring these ideas:

https://t.co/2OsvrmvxeX
28/

If you're still with me, thank you very much!

Stay safe. Enjoy your weekend!

/End

More from 10-K Diver

10-K Diver
10-K Diver
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1/

Get a cup of coffee.

In this thread, I'll help you work out how much money you need to retire.

2/

The goal is simple.

You want to accumulate a *large* portfolio of assets.

How large?

Well, you should be able to quit your job. And you and your family should be able to live comfortably for decades -- just off of the income generated by this portfolio.

3/

This is the crux of the "FIRE" movement.

FIRE stands for "Financially Independent, Retired Early".

The basic philosophy is: keep your spending needs low. Save a large portion of your income. Invest these savings. With luck, you'll be able to retire early.

4/

FIRE advocates have a rule they love to cite: the 4% rule.

The 4% rule says: your annual expenses in retirement should not exceed 4% of your portfolio.

You can use this rule to calculate how large a portfolio you need to accumulate before you can quit your job and retire.


5/

For example, suppose you and your family need $40K/year to live comfortably in retirement.

Then you need to accumulate a portfolio that's at least $1M.

Another way to say this is: your portfolio should be at least 25 times your annual expenses in retirement.
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10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, we'll cover *State Quantities* and *Flow Quantities*.

This mental model can help us analyze many different entities -- from complex engineering systems to publicly traded companies.


2/

A "State Quantity" is something that's associated with a *specific point in time*.

For example, the number of followers a Twitter account has is a state quantity. This number can go up and down over time. But at any one *specific* time point, it's fixed.

3/

Similarly, the amount of cash a company has is a state quantity.

This cash balance can also rise and fall over time.

But pick any one *specific* time point -- and the company can only have one *specific* cash balance at that time point.

4/

By contrast, a "Flow Quantity" is something that's associated with a time *interval* rather than a time *point*.

For example, the number of followers gained by a Twitter account is a flow quantity. It's meaningful only when we specify a time interval (eg, the last 30 days).

5/

A simple analogy is that a State Quantity is like a photo -- a snapshot at a particular *point* in time.

But a Flow Quantity is like a video -- a record of events that take place during a particular time *interval*.
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10-K Diver
10-K Diver
@10kdiver
Get a cup of coffee.

Let's kickstart 2022!

To that end, here are 22 key concepts to help you appreciate and achieve Financial Independence.

Concept #1.

What is Financial Independence?

It's a state of *self-sufficiency*. It's when you have enough money, and enough income-producing assets, that you and your family can live comfortably for the rest of your lives -- WITHOUT needing a job.

Concept #2.

Financial Independence is not really about spending MONEY how we like -- although, to an extent, that becomes possible.

It's about being FREE to spend our TIME how we like.


Concept #3.

Financial Independence is not really about quitting our jobs and retiring from work -- although that's possible.

It's about being FREE to pursue *whatever* kind of work we find most fulfilling. Things we love to do. Things the world benefits from. Etc.


Concept #4.

For most of us, the path to Financial Independence consists of:

- Starting Early,
- Saving Diligently, and
- Investing Responsibly.

Here's an inspiring story of a janitor who amassed an $8M fortune by following this very playbook:
FINANCE
10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'll walk you through the various connections between asset prices, interest rates, and inflation.

As an investor, it's useful to have a mental picture of how these pieces affect -- and are affected by -- one another.


2/

Suppose we have an investment opportunity.

This could be buying a stock, a bond, a private business, etc.

Let's say this opportunity will return $1M in cash to us after 1 year.

And not just that. This $1M will grow at 10% per year for the next 9 years, and 3% thereafter.

3/

This is a classic "cash flow model" that finance-y folk use all the time.

We have a business that promises to grow quickly for a while (in this case, at 10% per year for the next 10 years or so).

But after that, growth slows to a "terminal" crawl (3% per year).

4/

If we decide to buy this business, our "cash flows" from it will look like this over time:


5/

The question is: how much should we pay for this business?

Well, that depends on what kind of return we hope to get from buying it.

If we want a high return, we can't pay very much.

The lower the return we're willing to tolerate, the more we can pay.
ASSET PRICE VS INTEREST RATE INFLATION
10-K Diver
10-K Diver
@10kdiver
@Tom_Voltz1 1/

That’s a possibility.

Buffett has this concept of “owner earnings”: how much cash can be safely taken out of a business each year without hurting it?

Take out more than this, and we risk hurting the business’s competitive position, earning power, unit volume, etc.

2/

At the same time, leaving capital in a terrible business is not a great idea either. It’s like throwing good money after bad.

In fact, directing capital away from textiles (a bad business) and into insurance (a better business) is one reason for Berkshire’s success.

/End
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“In search of the holy grail”

A thread-


Holy grail- A strategy Which can make money all the time.

After going through two phases of a traders journey, the initial success phase, and Only why do i get loss phase, Traders enter the third phase -

THE SEARCH FOR THE HOLY GRAIL PHASE.

This phase has no limits, It can end in 1 month and it may not end till lifetime.

What exactly is this phase?

When a trader covers all the basics, they know how to lower their losses, they know the power of risk management.

And few of them may even develop their edges and systems over time.

But after some time, they feel that they are doing something wrong and there is more to trading than what they know.


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Few of them start to Read more books about trading,finding articles about “How to win 100% of the time” and listening to Youtube videos of few big traders who make big in trading.
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CHEAT-SHEET

Multiple Confirmation short.

A Short Entry that we shared in 2020.

Study it point wise.

1. Bearish Candle type and lowering of volume on Price rise.

2. OBV divergence.

3. Accumulation with Bearish candles and Volume increase on Price decrease.

STUDY IT!


Explanation

1. When price increases with a decreasing volume, it's bearish.

2. OBV, On Balance Volume should be correlated with price.
If price increases without similar increase in OBV, it's bearish.

3. During consolidation, if the volume increases during dumps, it's bearish
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Dr. Ellie Lockhart is the protagonist
Dr. Ellie Lockhart is ...
@BootlegGirl
OK, I guess I have a thing to say about the stock market. I have done kind of what these Reddit folks are doing with it, in that I have invested in the stock market when I was not at all rich, using parts of my paycheck that it probably wasn't wise to risk. I don't now. (thread)

But, like, it worked out okay for me. I even shorted some stuff. I didn't coordinate with anyone or whatever, but I don't think on the individual level the stock market is *inherently* malicious. If you're privileged, you're going to be exposed to it (through 401ks, etc.)

And I don't think it's wrong for people to try to make money off of it outside of the 401k/retirement context that's socially normal, *especially* if they're desperate like I was. There *are* strategies that you can use that, while risky, aren't exactly like gambling

Like, gambling is risky in a different way. You are always working with a fairly consistent set of probabilities in gambling, and they're never in your favor (outside of grey area gambling like between friends, where you could hypothetically actually still card count)

Anyway, like, on shorts: I don't think they're evil. I think they're dangerous. For an individual, a short always carries a small risk of individual bankruptcy. There's USUALLY not even a huge upside to them; they're not mystical or magical, they're basically reverse "longs"
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Knowledge sharing initiative Book 4: "The interpretation of financial statements" by Benjamin Graham.

This book was published around 1937 by investing legend Ben Graham. Ben is also regarded as the guy under whom the great Warren Buffett started his investing journey.


This book teaches financial statement analysis in a very simple manner. It also focuses on the key relationship between P&L, B/s & Cash flow statements of a company.

Here are key takeaways from the book 👇👇

1.B/s shows how much a company owns (assets) & owes (liabilities) at a particular point in time mostly prepared on a semi-annual & annual basis.

2.Assets=Tangible (PP&E, inventories, accounts receivable, cash)+intangible Assets (trademark, lease rights, goodwill)

3.Liabilities=Short term debt (accounts payable,current portion of long term debt,advances from customers) + Long term Debt (bank loans,bonds,lease liability)
4.Tangible assets are written down through depreciation & intangibles are written down through amortization or impairment

5. Depreciation & amortization means normal wearing out assets over its typical lifespan. It allows the cost of the asset to be charged off (in the income statement) over a number of years.

6. Depletion gets applied in commodity businesses like cement, mining, and crude oil.
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A thread on getting intraday (any timeframe) data to excel without any coding. Limited to only last 60 days. Fetches from zerodha chart.

👇

1. Open the chart on zerodha web in chrome. Right click and select 'Inspect'. Click 'Network' as shown in this pic.


2. Right click on the last entry on the table you see and click 'copy as cURL (bash)'


3. Go to website https://t.co/f8rhwoGLUc and paste on the left box and click 'Run'

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Namboothiri. Poonthanam thanked Krishna for helping him from danger and said to the man that "Shri Krishna has send you here and I don't know how to thank you".  The man smiled and told that he is Mangattachan, minister of  samoodhiris. Poonthanam once again thanked him and


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Hare Krishna
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📜 Not horrible functions for getting the first and last item (or key) from an array!

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Mata Sundari Gurdwara in Delhi.


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5/ At first Mata Ji refused but eventually gave permission for Jassa Singh to go with his mama, giving Jassa Singh a blessing and weapons, informing him, it was now the right time to take up arms.
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