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s_r_constantin's profile
Sarah Constantin
Sarah Constantin
Sarah Constantin
@s_r_constantin

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Sarah Constantin

@s_r_constantin

Math/ML/data-science person now working on solving aging...and helping with COVID19?! Founder, LRI and Daphnia Labs. Married to @oscredwin

Be
srconstantin.posthaven.com
Joined February 2019

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    1. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      The S&P 500 has a mean return on investment of about 10% a year. (It depends on the size of your window for the moving average, as of course the stock market will go down in recessions.) This is the return you'd expect on average from investing in an index fund.

      2 replies 1 retweet 8 likes
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    2. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      So the first question I asked is the dumb-and-obvious one: "do VC's, as a class, actually do any better than an index fund?" The answer, reassuringly, is yes; there's a lot more variance in VC returns, but in the long run early-stage VCs make about a 20% yearly return.

      4 replies 2 retweets 18 likes
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    3. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      (source: https://www.cambridgeassociates.com/wp-content/uploads/2015/05/Public-USVC-Benchmark-2014-Q4.pdf …)

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    4. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      VCs as a class have about the same internal rate of return as Berkshire Hathaway https://www.berkshirehathaway.com/2018ar/2018ar.pdf …, a standard example of a very good investment firm.

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    5. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      An exceptional single *company* can have a higher rate of return, though: Amazon has been growing at an average rate of 36% a year since it IPO'd. If you had to pick between being Jeff Bezos and being a typical VC, on purely money grounds, you'd want to be Bezos.

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    6. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      It's apparently possible to be a VC firm that raises large funds and underperforms; DCM Ventures is in the top 10 firms for largest funds raised and the IRRs I could find are as follows: DCM II: 0.20% DCM III: 2.1% DCM IV: 4.89% DCM V: 18.69% DCM VI: 3%

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    7. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      The generalization of this is a martingale. https://en.wikipedia.org/wiki/Martingale_(probability_theory) … Your expected value at the next time step is the same as your present value, but your variance grows over time as you keep reinvesting your winnings. In the long run, you get rich...or go broke.

      3 replies 1 retweet 4 likes
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    8. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      A martingale can have a positive expected rate of return but a zero "drift" term (modeled as a geometric Brownian motion, e^(mu*t + sigma W_t), martingales have mu=0.)

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      Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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      The Kelly Criterion https://en.wikipedia.org/wiki/Kelly_criterion … would say that to maximize your long-run growth, you should not invest in martingales at all -- after all, they have no long-run tendency to grow!

      9:28 AM - 7 Sep 2019
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      • Tequehead ELLIOTT MAKES REVOLUTION James Mishra Frank Lantz MogulAzam
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        2. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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          So do the portfolios of VCs have a positive exponential growth rate? i.e. do they have a systematic tendency to grow, or are they just exponentials of random walks? (which only make money on average because you exclude those which go broke).

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        3. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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          You can't know for sure, but you can do quick-and-dirty Z-tests to see if the firm's long-run IRR is outside a 95% confidence interval away from zero. My data is very incomplete but so far it looks like some firms meet this criterion and some don't.

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        4. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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          But I just made up the 95% confidence interval; investors are not necessarily foolish for investing in VCs that "can't reject the null hypothesis", especially if they invest in a diverse set of VCs that together have a mean growth rate >0.

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        5. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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          The basic overall conclusion is that VC’s as a class make about the same return you’d expect to compensate for their level of risk. This average includes a mix of VC track records, from “no better than coin flipping” to “way above-market returns.”

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        6. End of conversation
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        2.  🌐 💡 🧮Make the RCT printer go brrrr  🛴 🥑 🦆‏ @TrevorVossberg 7 Sep 2019
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          Replying to @s_r_constantin

          Don't think this is right. If you have a martingale like flipping a coin and doubling/halving your money. Kelly says you should be indifferent between investing all in it and all in cash (zero return). But mixed investment will result in positive return with rebalancing.

          1 reply 0 retweets 1 like
        3. Sarah Constantin‏ @s_r_constantin 7 Sep 2019
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          Replying to @TrevorVossberg

          In the linked article, the optimal amount to invest in an asset is (mu-r)/sigma^2. If mu = r (if the asset has no higher an average rate of return than cash), this implies the optimal amount to invest is zero. What am I missing?

          1 reply 0 retweets 0 likes
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