Feb

27

Execution, from James Sogi

February 27, 2007 |

It's spring in Hawaii. The free-range chickens in the yard are having little chicks. They are really cute. The clutches vary from three to 10 chicks. They all follow their mother hens around and peck at little worms. They struggle to keep up with mom, across the grass, up the rocks. Sometimes when the mother is spooked, she reverses direction really fast. Some of the chicks are not paying attention, or are not as fast, and are left behind. The Hawaiian Hawk, or Io, is cruising right above in the trees and swoops down and grabs a chick. Out of ten chicks, maybe two or three survive to maturity. Execution is swift.

That reminds me that when he market changes direction, not everyone is paying attention, or can't move as fast, and some few are left straggling in the wrong direction. A good spec is on the alert and can swoop down for a meal. That brings up the subject of execution. It can account for several percentage points of return, no matter what the system. There is always the tradeoff in fills, between size and accuracy. One can't have both. That brings up alpha. How much alpha is execution? A part of any system is its executability and accounts for a chunk of alpha. Many systems look great, but will they execute? A poor system can turn out great with great execution.


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