In a recent article for Canada’s Globe and Mail, Validea CEO John Reese says that when it comes to investing, boring is beautiful.
Reese looks at how quantitative models have a much better track record of forecasting than human beings. But, he says, humans avoid models because they think they can do better, and because models don’t make for the most exciting investment approach.
“The boring consistency of models is why they beat humans — and why humans avoid models,” he says. “And their boring consistency highlights a great irony of the stock market: The investors who produce the flashiest returns usually do so in the unsexiest of ways. They don’t load up on high-risk, exciting tech stocks, or try new, flavour-of-the month strategies. They stick to the basics. Whether they use models or not, they analyze a company’s balance sheet, competitive position, and valuations. And when the numbers tell them to buy, they buy — regardless of what their own fickle emotions might be saying. As hedge fund guru George Soros once said, ‘If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.'”