ex-Citadel portfolio manager, just explained why almost every fund actually blows up. "90% of hedge fund failures, PM failures, analyst failures, it's bad portfolio construction, sizing, all those things." the logic: alpha is competitive. one good idea barely moves the needle, because the moment you build a book, correlation... starts eating you. "any amount of correlation in a portfolio drags your sharpe ratio toward the market's." and the market's sharpe you can buy for free from Vanguard. so the entire game collapses to two things: generate a positive hit rate across enough independent bets, and kill the correlation between them. the funds that survive run 80-90% of their risk in idiosyncratic, stock-specific bets. only 10-20% is allowed to be factor exposure. and they treat every factor bet, momentum, crowding, "long the AI trade", like a single stock position, with the same hard limits and the same diligence. the ones who blow up almost always had the ideas. they just leaked P&L on risk they never meant to take. "what they got wrong was risk and portfolio construction." clip from "Odds on Open"show more

This is why a portfolio can look diversified and still be one trade. Ten positions tied to the same factor, liquidity regime, or macro outcome are not ten independent bets. The real skill is knowing what risk you actually own.

'Alpha is competitive' is the line doing the real work there. A thin, uncertain edge is exactly the one you can't size big, and that's why construction ends up outweighing the idea. If an edge were huge and certain you'd just concentrate and sizing would barely matter. It's the edge staying competitive that forces the discipline. The retail version runs backwards. A setup looks clean so it gets more size, when a thin edge is the one that should stay smallest. How good a trade looks to me has never been what made it pay, so I stopped letting that feeling touch the size.

@richfalkwallace Utter bollix…. Almost every fund blows up hahaha … nonsense… and his reasons lol… PMs can blow up because they are call options and call options often go to zero… most HF PMs now sit in pods and run v v narrow strategies their incentive is take as much risk as allowed

🤔🤔🤔🤔

Ure such a tard dawg

underrated take. everyone chases alpha and ignores that construction and sizing are what actually keep you alive

Bad portfolio construction kills alpha faster than bad stock picks. Concentration, correlation, and overleveraged sizing are the silent killers. Most funds don't blow up from wrong calls — they blow up from poor construction.

Position sizing matters as much as stock picking.

Sizing is where the blowups actually live, not idea generation. We cap single-trade loss against a daily limit before the trade is even allowed.