Audit your trading the way pros do it

Traders are always interested in improving their techniques. Today, I would like to offer a framework for thinking about your trading, using the way fund sponsors evaluate investment managers, called the 5 Ps. People: Who are you, and what's your experience and training? Performance: How have the returns been, and what kind of risk did you...

A simple decision vs. a decision process

I got some pushback from a reader to my weekend post (see How to spot the bear market bottom) about the FT Alphaville article indicating that former Secretary of Defense Mattis raised concerns about how the White House lacked a decision making process. The reader went on to defend Trump's decisions. I try very hard...

A 2018 report card

The year is nearly over, and it is time to issue a report card for my investor and trading models. Overall, both had good years, except for the trading blemish at year-end. My inner investor could not have asked for much more. He was correctly bullish during the run-up from early 2016, and turned cautious...

Pax Americana, or America First?

December is the season for investment advisors and portfolio managers to meet with their clients. Here are some thought on your an allocation framework as you prepare for those meetings. As a cautionary message, let's begin with a "buy and forget" portfolio featured in Fortune in 2000 and how they performed by 2012.    ...

My 2017 report card

Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The...

Peak smart beta?

A recent comment by Michael Mauboussin of Credit Suisse that nailed the dilemma of active managers, namely that using traditional approaches to alpha generation is akin to mining lower and lower grade ore: Exhibit 1 shows that the standard deviation of excess returns has trended lower for U.S. large capitalization mutual funds over the past five...

A passive index fund built to outperform?

A long time reader sent me this Seeking Alpha article entitled "Monish Pabrai Has Created An Index Fund Built To Outperform", which described a "passive index fund" built using the following three investment themes deployed in three portfolio buckets: Share buybacks: Companies that are buying back their own shares Selected value manager holdings: The holdings...

How much business risk is hiding in your portfolio?

This is the second in an occasional series of posts on how to build a robust investment process. Part 1 was addressed to the individual investor and trader (see The ways your trading system could lead you astray). This posts explores the issues that face the professional and institutional investor. I had illustrated in the...

The ways your trading model could lead you astray

I have had a number of discussions with subscribers asking for more "how to" posts (see Teaching my readers how to fish). This will be one of a series of occasional posts on how to build a robust investment process. For traders and investors, one of the challenges is how to build a robust discipline...

Thanks, but I’m not that good!

It's always nice to get positive feedback from subscribers. One subscriber praised me for my trading model and wanted real-time updates of signal changes (which I already provide but wound up in his spam folder).   Another subscriber complimented me on my series of tweets indicating an oversold market on Thursday, which suggested that the...

If machines are human, would you let one marry your daughter?*

Several months ago, the internet was all abuzz over the victory of Google's AlphaGo program beating Go grandmaster Lee Sedol (see story here). As the game of Go is a computationally and mathematically complicated game and the number of variations in the game is an order of magnitude higher than chess, it was a great...

The dirty little secret behind “smart beta” investing

Some minor buzz has arisen among finance academics and professionals as a result of a paper by Ronald Kahn and Michael Lemmon, both of whom are employed by Blackrock, entitled The Asset Manager’s Dilemma: How Smart Beta Is Disrupting the Investment Management Industry. Here is the abstract: Smart beta products are a disruptive financial innovation...

The price of success

Last year, my Valentine's Day post was about how Facebook analyzed the behavior of who fall in love (see Falling in love, the Facebook version). This year, I thought that I would highlight the price of success for hedge fund managers. I highlight a research paper entitled Limited Attention, Marital Events, and Hedge Funds. Here...