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vgr's profile
Venkatesh Rao
Venkatesh Rao
Venkatesh Rao
@vgr

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Venkatesh Rao

@vgr

Conversational account. For work follow @ribbonfarm, @breaking_smart, @artofgig. Tweets are 90% vacuous views, apathetically held. Mediocritopian. IKEA builder.

Los Angeles, CA
venkateshrao.com
Joined August 2007

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    1. Venkatesh Rao‏ @vgr Jul 7
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      Investing in individual stocks is a weirdly crazy ride. I only do it with play-money levels on the side of bulk of portfolio in index funds, but when they do well, your "play money" level suddenly gets very serious and you are no longer primarily a passive investor.

      4 replies 1 retweet 84 likes
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    2. Venkatesh Rao‏ @vgr Jul 7
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      There's also periods when passive and active turn into almost the same thing because a few big stocks doing really well while others are doing badly means they dominate the index. Which means if you also hold a position individually, you're overindexing what's already indexed

      2 replies 0 retweets 17 likes
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    3. Venkatesh Rao‏ @vgr Jul 7
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      It's like an evolutionary bottleneck for the economy, where everything is under extinction stress from an asteroid or something, so investing in the few individual species that might survive is the same thing as investing in entire biomass in proportion to survival expectations

      2 replies 1 retweet 15 likes
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      Venkatesh Rao‏ @vgr Jul 7
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      Venkatesh Rao Retweeted 𝔻𝕒𝕧𝕚𝕕 𝔸𝕝𝕝𝕖𝕟

      My thinking: An index by definition is a bet that the future will be like the *present*, and current distribution of wealth will self-perpetuate. When the future is not like the present, it's often just a handful of companies making it different.https://twitter.com/mdavidallen/status/1280561841241042961 …

      Venkatesh Rao added,

      𝔻𝕒𝕧𝕚𝕕 𝔸𝕝𝕝𝕖𝕟 @mdavidallen
      Replying to @vgr
      why would one buy an individual position that's already held in a diversified fund? (For this reason) unless over-indexing is the point. Perhaps you want exposure to S&P 500 but more to specifically 1 company because (reasons)
      11:03 AM - 7 Jul 2020
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      • Chuck Beretz Olaf Damien C. Tanner Harry Sudock Rahul Ramchandani Jonathan Hillis merry opposition Bandeauxx. Tim Rooney
      2 replies 0 retweets 17 likes
        1. New conversation
        2. Venkatesh Rao‏ @vgr Jul 7
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          So if you believe "software will eat the world" then eventually the S&P will get there with increasing dominance by tech stocks (as is slowly happening). If you want to get a time advantage, you do a spot of speculative execution, take on risk by adding more tech than S&P does.

          2 replies 0 retweets 17 likes
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        3. Venkatesh Rao‏ @vgr Jul 7
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          Diversification is limited by the fundamental diversity of surviving things. When an ecosystem goes through an evolutionary bottleneck, temporarily the maximum diversity will plummet as there's a big extinction event (in biology, historically to the tune of 90%)

          1 reply 1 retweet 11 likes
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        4. Venkatesh Rao‏ @vgr Jul 7
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          If for example, before Covid, you held 95% S&P and 5% AMZN, and 5% is your "play" level, that ratio is now seriously out of whack, and you have to consider dumping some AMZN to buy S&P *or* redefine "play" for yourself (= "risk tolerance"). Is post-Covid future Amazonian?

          1 reply 0 retweets 11 likes
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        5. Venkatesh Rao‏ @vgr Jul 7
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          15y ago I was 100% passive index funds. Only in last 7y or so have I allocated "play" money to big tech stocks. It's done unreasonably well so I have to either reassess or rebalance. Is Burton Malkiel still right? Or is passive investing going through extinction bottleneck? 🤔

          3 replies 0 retweets 12 likes
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        6. Venkatesh Rao‏ @vgr Jul 7
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          I'm not a values investor as in idealistically investing in renewables or tech because I believe in the underlying moral principles. But I'm something like a "coincidence of values and trends" person. Bulk in passive, distort it with some play money where values/trends coincide.

          1 reply 0 retweets 2 likes
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        7. Venkatesh Rao‏ @vgr Jul 7
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          Of my play money (which was maybe 5% 5 years ago), I've invested mostly in major tech stocks and a small amount in renewable energy related things, which did really badly (lithium companies). Net, the play money way outperformed the index part. Was going to rebalance last year...

          1 reply 1 retweet 2 likes
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        8. Venkatesh Rao‏ @vgr Jul 7
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          ...but then I procrastinated and Covid happened, everything got accelerated, the market got crazy distorted beyond what it already was, and the play money did much better. So now, what I thought of as "rebalancing" in 2019 would really be a bet on "old normal will return"

          1 reply 0 retweets 8 likes
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        9. Venkatesh Rao‏ @vgr Jul 7
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          Which seems like a stupid bet tbh. Covid definitely counts as an extinction-level event that's caused changes to unfold far faster than indices are keeping up (with money printer go brrr effects making it even slower).

          1 reply 1 retweet 5 likes
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        10. Venkatesh Rao‏ @vgr Jul 7
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          Also, general broad belief in passive investing seems to have slowly eroded over the last decade to the point where no serious pro investor I know seems to unqualified recommend it anymore. But Malkiel himself seems to think pandemic has changed nothinghttps://www.ai-cio.com/news/active-funds-still-losers-malkiel-says/ …

          3 replies 0 retweets 3 likes
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        11. Venkatesh Rao‏ @vgr Jul 7
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          To be clear, Malkiel is primarily against "active investing" in sense of pro traders charging commissions to do more active trading esp. in volatile times. I'm suggesting something more milquetoast: hold a few long positions to slightly distort a basic index/passive approach.

          1 reply 0 retweets 2 likes
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        12. Venkatesh Rao‏ @vgr Jul 7
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          I guess I could label the posture I've accidentally landed in and rationalized to not change as "supercharged passive" or "accelerated passive." Just buy a bit more of a subset of things that are already heavily represented in the index.

          2 replies 0 retweets 1 like
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        13. Venkatesh Rao‏ @vgr Jul 7
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          Thread brought to you courtesy a warning pop up on my investment account saying I have concentration risks. Question is whether to ignore it....pic.twitter.com/h3EaE46l11

          2 replies 0 retweets 1 like
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        14. Venkatesh Rao‏ @vgr Jul 7
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          And let's not even talk about crypto

          2 replies 0 retweets 5 likes
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        15. Venkatesh Rao‏ @vgr Jul 7
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          Funny how few people talk about "home ownership" as a risky concentration. I mean sure, you live in an owned home, but it's still pretty risk to have so much of your wealth in a single physical asset, let alone a single stock.

          6 replies 2 retweets 18 likes
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        16. Venkatesh Rao‏ @vgr Jul 7
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          Vague hypothesis: big disruptions temporarily level playing field between retail investors and pro investors slightly. They've suddenly had a lot of analysis trashed (cache invalidation/branch prediction error), and while they build it back up you might be able to turn faster.

          3 replies 1 retweet 4 likes
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        17. Venkatesh Rao‏ @vgr Jul 7
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          It's a bit like overtaking on a curve. On long straight stretches, the vehicle with a more powerful engine will steadily pull away. When there is a sharp turn, a vehicle with better cornering but less power can temporarily pull ahead. Inertia/momentum here = cached knowledge.

          2 replies 1 retweet 5 likes
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        18. Venkatesh Rao‏ @vgr Jul 7
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          I'd really like to see solid critiques of passive investing that don't assume that the only alternatives are active funds managed by shady managers, or being wealthy enough to be accredited as a private investor.

          2 replies 0 retweets 4 likes
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        19. Venkatesh Rao‏ @vgr Jul 7
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          I'm by no means anything but an entirely average retail investor with an entirely average (probably well below for my supposed social class) net worth. But I am suspicious of "shut up and sit down and let the pros invest; just track the index they move"

          1 reply 0 retweets 2 likes
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        20. Venkatesh Rao‏ @vgr Jul 7
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          Especially during times when there are massive distortionary forces coming from highly corrupt institutions fighting to survive, AND highly disruptive environment forces like Covid, AND high momentum forces like software eating the world.

          1 reply 0 retweets 4 likes
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        21. Venkatesh Rao‏ @vgr Jul 7
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          I should add... and when vast amounts of money are invested with varying degrees of automation. Both institutional investors who must follow rules on allocations/ratings and algorithmic things going on.

          1 reply 0 retweets 3 likes
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        22. Venkatesh Rao‏ @vgr Jul 7
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          There is a lot of "algorithmic momentum" so to speak, leading to institutions and "professionals" of all sorts acting in ways that reflect pre-Covid times. Plus the disconnect from real signals people are talking about (ie Wall Street as a computer cut off from good input)

          1 reply 0 retweets 1 like
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        23. Venkatesh Rao‏ @vgr Jul 7
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          Venkatesh Rao Retweeted Venkatesh Rao

          Broader point I've made before about difference between boundary and interior intelligence. A good market needs both, but in general BI >>> II, so when signals get cut off, those with intact BI signals by virtue of NOT being institutional might pull aheadhttps://twitter.com/vgr/status/915302752720322560?s=20 …

          Venkatesh Rao added,

          Venkatesh Rao @vgr
          1/ I'd like to make up a theory of intelligence based on a 2-element ontology: boundary and interior intelligence
          Show this thread
          1 reply 0 retweets 1 like
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        24. Venkatesh Rao‏ @vgr Jul 7
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          The real danger is in thinking you're either smarter/dumber or luckier/unluckier to explain everything. A third variable, having intact connections with the world/environment that institutions lack matters when the world is changing fast.

          1 reply 0 retweets 5 likes
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        25. Venkatesh Rao‏ @vgr Jul 7
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          I think Covid got inside OODA loop of Wall Street in a way that nobody has yet recognized. One of the textbook signs of that is being cut off from external reality leading to loop collapse. It's missed an exit that others accidentally did NOT miss by being in the rightmost lane.

          1 reply 2 retweets 4 likes
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        26. Venkatesh Rao‏ @vgr Jul 7
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          This means what the market is doing right now is somewhere between realizing it missed an exit and taking the next one and doubling back. So now is a bad time to "rebalance" out of whack portfolios to be properly passive.

          1 reply 0 retweets 5 likes
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        27. Venkatesh Rao‏ @vgr Jul 7
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          When market makes a mistake you accidentally fail to make, you do NOT want a passivity theology tempt you into *actively* tracking that mistake while it is still correcting. Ie, I'll probably still rebalance and try to lower concentration to be back to mostly index, but...later

          1 reply 0 retweets 2 likes
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        28. Venkatesh Rao‏ @vgr Jul 7
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          I'm not claiming any prescience here. I bet on "software eating the world" not "swew+covid=accelerationist wet dream." I was accidentally a bit more right than the market in a 3-month horizon. Empire may strike back and force world back to dystopian reboot into old normal.

          2 replies 1 retweet 2 likes
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        29. Venkatesh Rao‏ @vgr Jul 7
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          So I guess my actual implied thesis in NOT rebalancing right now is that the market will not waste the reboot, and will eventually steer into the acceleration despite money printer going brrr to pretend Covid didn't happen.

          0 replies 1 retweet 3 likes
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        30. End of conversation

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