Author Archives: Cameron Hight

I was speaking with the risk manager at a new shop when he stopped me mid-sentence and asked, “why wouldn’t I just build this myself in Excel?” Now I’m used to the question, as most of us in this profession are quantitatively savvy and have at least one person in the firm that is a power Excel user, but this […]

“I must concede that my occupation, active money management, may be one of the best examples of the illusion of control in the professional world.” – Michael Mauboussin. If ten randomly selected people play Federer in tennis, they will, with a very high probability all lose. You would get the same outcome if ten people play Kasparov in Chess. If […]

I was working with a smart firm the other day and one of the partners was reticent to implement Alpha Theory. He believed  that it was flawed by forcing assumptions on top of assumptions. While I can understand this visceral response, the logic doesn’t hold true in complicated decisions like asset selection and portfolio management. At the end of the […]

When people mention “Risk Management” in investing the traditional metrics of volatility, correlation, Value at Risk, Beta, Sharpe ratio, etc. come to mind. But for fundamental shops (stock pickers) it is difficult to utilize risk management statistics to manage a portfolio. In fact, at my old shop, we would fire up the risk management software on the 30th of every […]

Dan Goldstein of the London Business School was kind enough to contact me and show me more intellectually accurate ways of interpreting and explaining the concepts of cognitive bias after reading my blog post, “To Price Target or Not to Price Target…that is the question.” Through our conversations he forwarded along a paper written in 1979 by Robyn Dawes called […]

I recently finished Michael Mauboussin’s new book entitled “Think Twice” which expands on many of the topics of “More Than You Know” but is geared a bit more towards a general audience and less directly at institutional investors. Mauboussin’s goals are not dissimilar from those of Alpha Theory. We both strive to help people appreciate the common and avoidable mistakes […]

The other day, I was doing what I spend much of my days doing – talking to a portfolio manager about Alpha Theory. He told me that Alpha Theory makes terrific sense for firms that calculate price targets, but that he didn’t believe in price targets. When I asked him why, he responded that there is a lot of instinct […]

“…we try to exert a Ted Williams kind of discipline. In his book The Science of Hitting, Ted explains that he carved the strike zone into 77 cells, each the size of a baseball. Swinging only at balls in his “best” cell, he knew, would allow him to bat .400; reaching for balls in his “worst” spot, the low outside […]

“A reasonable probability is the only certainty.” – Edgar Watson Howe In Einstein’s Theory of Relativity, he postulates that space and time are relative to the person observing them. That a set of twins, one standing here on Earth and the other shot at the speed of light to the edge of the universe and back, will be significantly different […]

“The fundamental law of investing is the uncertainty of the future.” – Peter Bernstein, famed investor   I am offered two bets. In bet number one, I am paid $150 for every heads and pay $100 for every tails. My risk-adjusted return is 25%. In bet number two, I’m presented with a bag of poker chips that are only black […]