4 ms·

Interestingly enough, Goldman Sachs is reporting that quant strategies may be becoming overcrowded, yielding negligible returns: http://www.reuters.com/article/

by jakarta 17y ago

Interestingly enough, Goldman Sachs is reporting that quant strategies may be becoming overcrowded, yielding negligible returns: http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSGEE5B014020091201?sp=true http://www.reuters.com/article/rbssFinancialServicesAndRealE... I do believe there is some truth to this, a couple years ago during the "quant bloodbath" we saw a major down swing across almost every quant fund, because they were all employing generally the same strategy. At the same time, with the trend towards more complex markets, quants will continue to rise in demand at Wall St. firms (especially since their profits dwarf those of the IBanking division). However, that does not mean you have to be a financial engineer to crank out market beating returns. Traditional value strategies will probably continue to be just as good and beat the market over the long term.

nsoonhui 17y ago
>Traditional value strategies will probably continue to be just as good and beat the market over the long term. I don't think so; the most you can do on average is to match the market return unless you have insider information which is clearly illegal. This is because so many has tried the traditional value strategies that the law of large numbers set in.
- jakarta 17y ago
  It's pretty well documented that value investing in general will beat the market over the long term. See: The Super Investors of Graham and Doddsville http://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville http://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-an... How the Small Investor Beats the Market by Greenblatt, Pzena, Newberg (Journal of Portfolio Management, 1981) More recently, James Montier has released research at Societe Generale reflecting the fact that Graham and Dodd-style investments also beat market averages. The problem that arises nsoonhui is that most investors lack the emotional discipline which is necessary to invest in these types of companies, because of the psychological biases (people have a hard time embracing contrarianism, they usually cannot stomach the occasional stretches where value under performs the rest of the market, i.e.: dot com bubble). This is precisely why the law of large numbers has NOT set in. Many investors will pick up value investing and then drop it once it under performs. So, inefficiencies in markets continue to persist.
  - nostrademons 17y ago
    Take a look at the publication dates of those articles. 1981 and 1984. Right after the "U.S. is going to hell and stocks will never be a good investment" years of the 1970s, and right before the "If I put my money in a good mutual fund and leave it there, I'm guaranteed to make money!" years of the late 1980s and 1990s. Any investment strategy becomes less useful when large numbers of people pile into it. They bid up the assets that the strategy dictates they buy, which raises prices and lowers returns. I ran some cross-market analyses of stocks in 2006 when I was working at a financial software startup. I found that basically everything was overvalued: there were no values to be had in the stock market at that time. A true contrarian right now would hold cash, in the form of physical U.S. dollars. What's the one asset class that everyone is certain will decline? Cash. However, there're fairly good reasons why everyone thinks this, so even now the picture's pretty muddled.
    - jakarta 17y ago
      "I ran some cross-market analyses of stocks in 2006 when I was working at a financial software startup. I found that basically everything was overvalued: there were no values to be had in the stock market at that time." I guess you weren't looking at special situations/event driven investments were you? Because I know plenty of people who did well during that year taking advantage of inefficiencies like spinoffs, merger arb, and cap-structure arb, and so on... these are typically the types of investments that Buffett refers to when he said that if he was managing 7 figures he could do 50% a year.
    - artsrc 17y ago
      A strategy where you went short in 2006 would do quite well. To be contrary to this guy you would be short now: http://www.nytimes.com/2009/12/03/business/economy/03econ.html?_r=1&ref=global http://www.nytimes.com/2009/12/03/business/economy/03econ.ht... "There’s nothing here to support double-dip fears." You want to be overall long volatility and short the market. You can do that by buying some far out of the money puts, and possibly this fund by selling some in the money calls, and limit your down side by buying some out of the money calls.
    - 17y ago

by jakarta 17y ago

nsoonhui 17y ago

>Traditional value strategies will probably continue to be just as good and beat the market over the long term. I don't think so; the most you can do on average is to match the market return unless you have insider information which is clearly illegal. This is because so many has tried the traditional value strategies that the law of large numbers set in.

jakarta 17y ago
It's pretty well documented that value investing in general will beat the market over the long term. See: The Super Investors of Graham and Doddsville http://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville http://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-an... How the Small Investor Beats the Market by Greenblatt, Pzena, Newberg (Journal of Portfolio Management, 1981) More recently, James Montier has released research at Societe Generale reflecting the fact that Graham and Dodd-style investments also beat market averages. The problem that arises nsoonhui is that most investors lack the emotional discipline which is necessary to invest in these types of companies, because of the psychological biases (people have a hard time embracing contrarianism, they usually cannot stomach the occasional stretches where value under performs the rest of the market, i.e.: dot com bubble). This is precisely why the law of large numbers has NOT set in. Many investors will pick up value investing and then drop it once it under performs. So, inefficiencies in markets continue to persist.
- nostrademons 17y ago
  Take a look at the publication dates of those articles. 1981 and 1984. Right after the "U.S. is going to hell and stocks will never be a good investment" years of the 1970s, and right before the "If I put my money in a good mutual fund and leave it there, I'm guaranteed to make money!" years of the late 1980s and 1990s. Any investment strategy becomes less useful when large numbers of people pile into it. They bid up the assets that the strategy dictates they buy, which raises prices and lowers returns. I ran some cross-market analyses of stocks in 2006 when I was working at a financial software startup. I found that basically everything was overvalued: there were no values to be had in the stock market at that time. A true contrarian right now would hold cash, in the form of physical U.S. dollars. What's the one asset class that everyone is certain will decline? Cash. However, there're fairly good reasons why everyone thinks this, so even now the picture's pretty muddled.
  - jakarta 17y ago
    "I ran some cross-market analyses of stocks in 2006 when I was working at a financial software startup. I found that basically everything was overvalued: there were no values to be had in the stock market at that time." I guess you weren't looking at special situations/event driven investments were you? Because I know plenty of people who did well during that year taking advantage of inefficiencies like spinoffs, merger arb, and cap-structure arb, and so on... these are typically the types of investments that Buffett refers to when he said that if he was managing 7 figures he could do 50% a year.
  - artsrc 17y ago
    A strategy where you went short in 2006 would do quite well. To be contrary to this guy you would be short now: http://www.nytimes.com/2009/12/03/business/economy/03econ.html?_r=1&ref=global http://www.nytimes.com/2009/12/03/business/economy/03econ.ht... "There’s nothing here to support double-dip fears." You want to be overall long volatility and short the market. You can do that by buying some far out of the money puts, and possibly this fund by selling some in the money calls, and limit your down side by buying some out of the money calls.
  - 17y ago