Lessons From Over a Decade of Managing Money Using Quant Strategies

By Jack Forehand — When we started managing money, I used to focus on what I knew. Today, after over 12 years doing it, I have learned it is best to focus on what I don’t know because no matter how much you learn in this business, what you don’t know will always far exceed what you do. Looking back on everything I’ve learned, I’m pleased to say that the principles I initially believed have… Read More

New Quants Are Focusing on Artificial Intelligence

There is a new breed of “quants” that are looking to disrupt the industry using artificial intelligence (AI), according to a recent article in Institutional Investor. One such fund is Numerai, started by 30 year-old South African Richard Craib, who thinks AI will “lower the cost of fund management, producing savings that can be passed on to institutional and retail investors.” While typical quantitative investment firms use people to build systematic strategies, Craib and his… Read More

There’s One Investing Edge Left – And Anyone Can Capitalize On It

By Jack M. Forehand —  “In investing, what is comfortable is rarely profitable.” – Rob Arnott Wall Street has become an incredibly difficult place for anyone to get an edge. With technology taking over the market, any small mispricing is typically corrected very quickly. And talent within the industry is also as good as it ever has been. Over 17,000 people were awarded CFA charters following the most recent exam. That is more than double… Read More

A Practical Approach to Quant Investing

By Jack M. Forehand — This is the first post in a new series we will feature on the Guru Investor that will take an in depth look at quantitative and rules-based investing, and models and strategies that work in the market over the long-term. At Validea, we have been running rules based strategies since 2003 and over the years, we have learned many things about what works, what doesn’t, and how to interpret it… Read More

Finding Your Edge a Key to Investing Success

By John P. Reese The mathematician Ed Thorp figured out how to beat Las Vegas casinos at blackjack and baccarat and they didn’t like it. But the MIT and University of California Irvine professor didn’t get discouraged. He applied those same mathematical principles to the markets, and also won. Mr. Thorp knows that good ideas have limited runs. As more investors pile into a winning trade, the returns start to diminish and the idea can… Read More

Hedge Funds Weigh-In on Human Versus Machine Debate

“Humans won’t be obsolete in this lifetime,” according to a recent article in Bloomberg. The article discusses a variety of prevailing opinions about the degree to which automation and big data will displace money managers. Winton, a London-based $30.6 billion hedge fund, told its clients that “people must still make the big decisions,” adding that computers are not ready to make investment elections on their own. Computers may be sufficient to “handle early stages of… Read More

Index Fund Pioneer Warming to Computer-Generated Trading

Princeton economics professor Burton Malkiel, who started the first passive index fund for Vanguard in 1976, has experienced a “remarkable change of heart,” according to a recent article in the New York Times. Referencing Malkiel’s revolutionary notion that dart-throwing monkeys could pick winning stocks as well as market “experts,” the article says the “index-fund evangelist” now believes, “Maybe the experts can beat the monkey after all. That is, if the experts are software engineers writing… Read More

Quant Strategies Dominating the Market

The growing popularity of quantitative over traditional investment strategies is causing the “largest gap on record between humans’ and computers’ gross exposure to U.S. equities,” according to a recent Bloomberg article (data provided by Credit Suisse Group AG). The article also provides data from JP Morgan Chase & Co. showing that passive and quant investors account for approximately 60% of all equity assets compared to 30% a decade ago, but says “whether this computer-driven force dictates… Read More

Jason Zweig on Potential Quantitative Model Crisis

A Ph.D. in Economics and former senior risk manager for Bridgewater Associates, Richard Bookstaber argues that while human judgment along with quantitative modeling can lead to better results than either alone, “when humans put blind faith in quantitative models, that’s dangerous.” This according to Jason Zweig in this month’s Wall Street Journal. The article discusses Bookstaber’s new book, The End of Theory, in which the author argues that computers and mathematical models perform well when… Read More

BlackRock to Expand Quant Investing

Actively managed funds at BlackRock, the world’s largest fund company, are facing the new reality of quantitative investing, according to this week’s New York Times. The exchange-traded-fund business the firm bought from Barclays in 2009 has seen huge growth, “leaving in the dust the stock pickers who had spurred an earlier expansion for the firm,” according to the article. BlackRock has therefore adopted a plan to consolidate several of its actively managed funds “that rely… Read More