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SI164: Compounding - The 8th Wonder of the World ft. Richard Brennan
1st November 2021 • Top Traders Unplugged • Niels Kaastrup-Larsen
00:00:00 01:06:24

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This week, Richard Brennan joins us on the show to discuss how people can benefit from the effects of compounding while others end up a paying a price for it. We also cover some thoughts on ‘path dependency,' why those invested in stocks should diversify using Trend Following strategies, why stable returns can only be correctly judged over long time periods, how to analyse fund performance without being influenced by the effects of compounding, some thoughts on what is known as ‘geometric returns’, and we explain the term ‘ergodicity’.

In this episode, we discuss:

  • How to stay on the right side of the effects of compounding
  • How many strategies can be limited by the make-up of their previous versions
  • The profitable & negative correlation of Trend Following to equities when stocks are falling
  • The need to zoom-out when judging performance
  • The terms 'ergodicity' and 'path dependency'

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Episode TimeStamps:

00:00 – Intro

01:37 – A Thank you to Shane, our website developer, for his great work in creating the new Top Traders Unplugged website. We hope you all enjoy the new user interface

02:09 – A huge thank you to listeners of the show, such as Dave W, for leaving your 5-star reviews on iTunes, and feel free to share this link with 3 of your like-minded friends:

03:02 – Macro recap from Niels

04:34 – Weekly review of performance

12:04 – Making money to make money, and some insights on the compounding returns

40:50 – How to judge different strategies accurately 

44:04 – Explaining the term ‘ergodicity’

52:17 – The diversifying features of Trend Following and their negative correlation to stocks during market downturns

01:01:24  Benchmark performance update