Jun

18

What exactly means this quote? I read of it years ago on a book about Medallion Fund but never understood if I got the meaning correctly.

We're right 50.75% of the time…but we're 100 % right 50.75% of the time. You can make billions that way.

- Robert Mercer

Peter Ringel responds:

my guess: trend following systems can have 40% win rate and lower. Yet via expectancy these sys can be very profitable. Medallion though, would do HF stuff, less MoMo.

Michael Chekalin comments:

Mercer refers to the consistency of Medallion. In other words, they are “consistently” profitable in the 50% area, which through proper money management, risk/reward, etc, can be extremely profitable.

Asindu Drileba writes:

I think its a reference to the "law of large numbers." Suppose you noticed the market goes up 51% of the time on Thursday. (for the 100 Thursdays in your sample dataset) This means that you will also loose 49% of the time. If you decide for example to only place bets for the first 20 days, you might have a win rate of 0%. All bets of the first 20 days can fail.

But the model will still be correct since you can make money for the subsequent 51 days and the lose money for the next 29 days — thus playing the market for all the 100 days (20 + 51 + 29). So your win rate will converge to 51/100 which is the same 51% you identified in your sample. You have therefore acquired 100% of the edge. I think that is what he means when he says "we are 100% right 50.75% of the time."

Nils Poertner adds:

Some specs have a 10pc win rate and do really well. Friend of mine was early investor in ETH in size- but all other of his ideas didn't work out. His nick name was "Harbinger of Failure." Kind of like the joke: "I told my friends I want to become a comedian - and they all laughed. And then I became a comedian and no-one laughed anymore." I often think about him now.

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