> With that in hand it’d be pretty easy to know if, say, Apple will beat or miss revenue for a given quarter.
Wow, seems so easy! That's not how the market works though. You've got to know if Apple's going to beat the analysts' expectations of how Apple is going to do. All the analysts have access to that data and that's table stakes.
Apple's guidance on revenue is only like 30% of the equation.
Typically, because they make so many bets, a hedge fund needs to be only 53-54% accurate with their predictions to make money.
The stock of every company will move a decently large amount on the day quarterly revenues are published, whether it's Apple or a smaller firm. You can make a lot of money via options maturing on such days. When you need to be right only 53% of the time, these signals _really_ add up.
>Typically, because they make so many bets, a hedge fund needs to be only 53-54% accurate with their predictions to make money.
Wouldn't that imply that every bet the fund makes is roughly of the same $$ value? I would figure more senior traders or more successful ones would vary the size of their bets relative to certainty or uncertainty of an event outcome (could be quarterly earnings, a political/geopolitical event, etc)?
Don't think of it like buying a stock on the spot market like retail investors typically do. Many hedge funds place their bets by using the options market, which limits the downside on a bad bet (see e.g. the butterfly strategy [1]).
The size of the bet also depends on a lot of factors. Many hedge funds don't work like monolithic entities, rather they have a bunch of portfolio managers (PMs) who have their own allocated pools of assets from investors. These PMs decide on placing their bets based on lots of different things like their liquidity position (e.g. you don't want to lock up your cash in one position even if you're sure it'll make money when there's a risk of being margin called because of another trade) in addition to signals such as the one dicussed above.
Wow, seems so easy! That's not how the market works though. You've got to know if Apple's going to beat the analysts' expectations of how Apple is going to do. All the analysts have access to that data and that's table stakes.
Apple's guidance on revenue is only like 30% of the equation.