The concept of Beta
Simply put, Beta represents "market return". In the US stock market, the S&P 500 index is usually used as Beta.
If a strategy:
Beta = 1, which means if the market rises (falls) by 1%, the strategy will also rise (fall) by 1%.
Beta = 2, which means if the market rises (falls) by 1%, the strategy will rise (fall) by 2%.
Beta < 0 means the strategy itself moves in the opposite direction to the market, often a safe-haven asset/strategy
Do a good job of goal management, don't do useless work
Many people may not know that Buffett’s average annual performance is only about 20%. Why can he be called the "God of Stocks"?
There are two core reasons:
- Beat Beta over the years (S&P average annualized return of about 10%)
- This reward is created stably, not by a single critical hit (not by luck)
Remember, most people lose money in the financial market. Everyone dreams of becoming a stock god, but in the end, they just become nothing more than a nutrient. Therefore, whether designing a trading strategy or drafting a trading plan, we must ask ourselves what our "goal" is.
The concept of Benchmark
Some people would say, “The goal is to make money.”
Great, so the next question is, “ How much money do you want to make ?”
In the world of crypto, there is a rather distorted value system: most people scoff at the phrase "10% a year" and simply disdain it.
Just look at the number of believers in Altcoin. Forget the S&P 500. Most retail investors find it too slow to even hold BTC, right?
In the crypto market, BTC is often regarded as the benchmark of this market, and you can ask yourself:
In 2024, how many people worked hard for a whole year but still underperformed those who simply held BTC?
Here’s another example:
If BTC is used as a benchmark, the maximum drop from the peak on January 20 this year to the date of this article (April 15) is about 32%.
During this period, as long as your loss is < 32%, you have actually beaten the benchmark.
Therefore, the key points are:
When the market is booming, even pigs can fly. At this time, it is necessary to ensure that the return is at least = beta ; once the market conditions deteriorate, switching to defensive mode in a timely manner is also a set of strategies. "No operation, reducing positions, and shorting" are all strategies.
It is impossible for us to catch every wave, but we just need to make sure we don’t underperform beta.
Summarize
Brief summary:
- Beta = the concept of market return, often used as a benchmark
- Buffett's strength lies in "compound interest + stable return creation", not a single explosive hit
- Think carefully about your "goal management" and then formulate a trading strategy
- Beta is the easiest profit to earn, so you should not lose to Beta in terms of operation.
Interestingly, the crypto market often sees returns of 5,000% or even 300 times, which has led many people to look down on strategies that return 10% a year. Everyone wants to be the protagonist in the myth of wealth creation, but in the end, they all become part of the corpses in the bloody financial market.
If you want to make stable profits in the market, please be sure to think about the issue of target management; if you just want to gamble and try to get a critical hit, then you can ignore what I said.
Finally, let me end with a screenshot of the previous quantitative strategy development.
In addition to beta, benchmark can also be the same strategy itself.
The above is the content of the trading concept supplement post (VI). I hope it is helpful to you. Thank you for reading this far.
Original link: https://x.com/market_beggar/status/1911966289549304269
