We all have a tendency to believe that the way we invest is the best way. As quantitative investors, we can sometimes feel that there is no reason anyone should ever use a discretionary strategy. But like most issues in investing, there are two sides to this argument. In this episode, we talk about the benefits of both quantitative and discretionary investing. We discuss: Why quantitative strategies can limit the impact of emotion and biases… Read More
New research has found that the implementation methods related to some factor-based investing strategies is the culprit for underperformance, and that “a simple formula can solve it.” This according to an article in Institutional Investor. The study reportedly analyzed the best way to combine investment factors like value and momentum and found that a portfolio constructed using “forecast risk management”—a formula that “determines the weights of an optimal multi-factor portfolio with risk management”—could generate “significant… Read More
By Jack Forehand, CFA I have always thought I am a better discretionary investor than I am. I think I can predict where the market is headed. I think I know which investing styles will work best going forward. When I look back at the current crisis, I am pretty convinced that I saw it coming and that I could have sold at the top and then bought back at the bottom. Of course, none… Read More
In an interview with Bloomberg earlier this year, Winton Capital Management founder and quantitative investing pioneer David Harding offered insights on the challenges faced by today’s quants, the competitive environment and the search for new strategies. Here are some highlights: Systematic strategies have become crowded according to Harding: “With low to zero interest rates, its tough to make money in the hedge fund game at the moment.” However, he added, “that’s what leads to innovation.… Read More
By Justin Carbonneau (@jjcarbonneau) – Two weeks ago I wrote an article, Differences in Value, where I outlined the various criteria (i.e. price-to-sales, price-to-book, and enterprise value-to-EBIT) used in the value models on Validea. As the piece got passed around Twitter, there was a very good comment by Tren Griffin, an investor and thoughtful writer. Griffin tweeted the following (see below – included in the tweet was a screenshot of a page from Berkshire’s Hathaway’s… Read More
Quantitative traders are hoping that computer-driven strategies will be able to “figure out this crazy stock market,” according to a recent article in Bloomberg. “Machine-learning takes quant investing to the next level because the robots are programmed to adapt and improve their performance based on the data they sample over time, without needing explicit human instructions,” the article explains. Although the concept is not new, it adds, the difference now is that the tools have… Read More
A new study by McKinsey says that traditional asset managers are using advanced analytics to build better decision-making capabilities rather than to replace human portfolio managers. This according to an article in Institutional Investor. “That means using data science to pinpoint and correct the mistakes investors are making and to focus portfolio managers on problems that only humans can solve,” the article explains, adding, “That’s in contrast to five years ago, when most traditional managers… Read More
By Justin J. Carbonneau (@jjcarbonneau) — Warren Buffett and others have long advocated buying companies with moats around their businesses. Strong brand loyalty (Disney), economies of scale (Walmart), innovation (Google), location (Starbucks) and other sources of competitive advantage play an important role in in the success of companies over time. The reason companies with moats appeal as attractive investments is that a moat, which is a function of a firm’s competitive advantage, protects the business… Read More
By Jack Forehand (@practicalquant) Last week, I had the privilege of attending Alpha Architect’s annual Democratize Quant conference for the second time. The conference brings together leaders in the fields of quantitative investing and asset management to talk about the state of the business, and to share ideas to help all of us learn and improve our investment approaches. Given how good last year’s conference was (my summary of that is here), they were going… Read More
An article in Bloomberg last month profiled an interview with JPMorgan Chase global head of macro quantitative and derivatives research Marko Kolanovic, who has gained a following in the investment community for his market-moving announcements. The article reports that Kolanovic—who leads a global team of about 50 researchers– began developing his ideas about systematic investing strategies in 2015. The idea gained popularity, but also brought some blind spots into Kolanovic’s focus. “If you’re running a… Read More