I finally got around to the latest Odds on Open podcast, and I’m still not sure what I expected. The premise, as I understood it, was a retail trader and a professional trader comparing the pros and cons of their roles. Fine. Great idea, actually. Then I read the bios.
Chris Camillo turned $20K into roughly $80 million over 18 years with his “social arbitrage” approach. Tom Costello is a former PM at Tudor, Moore, and Caxton who now runs a market-neutral fund targeting about 20% a year with a peak drawdown of 1.4%.
Okay. Sure. Reread the bios. WTF. For real, WTFF.
And yet, there was something that made the episode worth the listen. When you put two people with résumés like that in a room, it can go one of two ways. Either they gently pat each other on the back and steer clear of anything awkward, because each knows his own claims haven’t been poked at very hard. Or they start poking.
They poked. It’s always entertaining when one guy with a story too good to check gets a front-row seat to another one.
Chris showed up as a retail trader “audited” by Jack Schwager, the Market Wizards guy. This hurts a little, because Schwager sits on my podium of life’s disappointments right next to Michael Lewis. Both seem to have become victims of their own success. At some point the supply of genuinely exceptional people runs out, and the honest move is to admit you can only write so many books. Instead, the temptation is to keep the franchise going anyway. I’m not saying anyone made anything up. I’m saying the incentives all point toward finding the story, not checking it. Look the other way…or bend the story just a little.
Jack’s most recent book (I think it’s still the most recent) profiled retail traders nobody had heard of. If you’re writing about extraordinary track records, you’d better verify that they exist. By Jack’s own admission, his audit was light. He mostly relied on whatever the traders chose to hand over, and he said so publicly. Ethics aside, he can run whatever due diligence process he likes. What surprised me was the host treating it as the real thing. It is?
But I’m not here to relitigate Chris’s returns. I’m here for what he said on the air.
Yes, an institutional manager has career risk and will almost never run a strategy that can lose 50%. But that’s not why retail investors should avoid it. They should avoid it because most individual stocks that suffer that kind of drawdown never come back. It’s easy to say you should’ve held Amazon through the rollercoaster. But how many Amazons looked exactly as promising on day one and ended up as footnotes? Survivorship bias loves a sequel.
And that’s before you factor in what a drawdown like that does to compounding. A 50% loss needs a 100% gain just to get you back to where you started. Not even those stellar numbers Chris throws around, just break-even (while your benchmark, the alternative universe, is likely printing at 7%/year). Then there’s the person who needs the money sooner than planned and finds out the speculative bucket happens to be underwater that month. Funny how that works.
This is my problem with Taleb’s barbell, too. The idea that a retail investor should run something high-octane in a slice of the portfolio isn’t crazy. The problem is that the high-octane strategy doesn’t actually exist. I’ve written many times that “buy a bunch of stocks that chose to list on a particular exchange” is not a strategy (hello, Nasdaq). Pick a theme or a sector if you like, but you’d better pick the right one. There’s no beta in that bucket, only skill. So there’s no universal barbell, only whatever your particular skill happens to be.
That’s Chris’s game. He’s a Peter Lynch type: look around, spot a trend before the pros do. Terrific if you can do it. Assuming everyone can is something else, and the people who believe it are mostly the ones buying the book.
Say you decide to skip all that and buy VT at 2x leverage instead. Fine, we can discuss it. But it brings me to the best part of the episode.
Chris tells Tom that spending time on uncorrelated strategies is a waste. Go for the big swings, he says. Tom then points out that you can’t put all your eggs in the speculative basket, and Chris backpedals. It’s only a small bucket, he says, inside a larger diversified portfolio. Which is exactly the case for running uncorrelated strategies in the first place! Chris also says he can’t understand why people chase low-vol returns…but that’s fixating on one strategy and ignoring the portfolio. His own approach, by its own admission, only works inside a portfolio.
I asked Claude to summarize Chris’s strategy, and here’s what came back. One summary of his book describes a “Lockbox” for safety and a “Big Money Account” for aggressive, concentrated bets, with the latter funded by cutting small daily habits like the $5 latte. On entry and exit, he buys when he spots a meaningful social information imbalance and sells once the imbalance closes. In his own words, he gets out the second he decides the investing public and Wall Street have caught on to what he already knew.
Like a lot of people, Chris treats an investor’s different pools of money as separate worlds. They aren’t. They’re all swirling around in the same maelstrom. The investor who lets his left hand see what the right is doing ends up in a much better place.
I’d bet Chris has never heard of David Dredge. Dredge is what Chris needs, and honestly what you should aim to: run the high-octane strategy (a sensible one), then pair it with one or more others that make the whole portfolio better. Better risk-adjusted returns, better compounding, fewer sleepless nights.
And now the cherry on top: the other guy. A 20% return with a 1.4% drawdown? Sure, you could pair it with some beta. But if you really have that, and it scales, whatever you pair it with is the least interesting part of the story. The strategy is the story.
I think the real risk here is that Odds on Open has already jumped the shark. Sad, because I wanted to like it.
What I am reading now:
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