I just read an article in Institutional Investor about the problems that Grantham, Mayo, Van Otterloo & Co (GMO) are having with their long-term mean reversion strategy: GMOs Mean Reversion Strategy Is Testing In Today’s Markets Mean reversion works by trying to find times when certain markets are overextended to the upside or the downside. A […]
Global Markets Going Nowhere
Thanks to Sarhan Capital for pointing this out, off the lows of the other day here is how far some markets are off their highs and the levels they are trading at: The S&P was down 6.7% from highs and was trading where it was in Sept 2014. The Dow…down 7.5% and Sept 2014. […]
Changing the Structure of Tactical Return Generation
Tactical equity strategies that seek to outperform the market will typically try to accomplish this goal by limiting downside capture during bear markets. By their nature, tactical strategies don’t expect to get 100% upside capture during a bull market (unless they are using a decent amount of leverage) so the only way to outperform the […]
What World War Z Can Teach Us About Investing
In the movie World War Z a virus starts turning people into Zombies and they threaten to take over the world. The main character, played by Brad Pitt, is tasked with finding out what happened and how to cure it. On this mission he hears that Israel was the only country not overrun by the […]
The Current Market Environment and Implications for Tactical Asset Allocation Part III
As I write this the market has gone through what looks like another V shaped correction. After a few of these types of moves in succession we can no longer call it a fluke, it may not be the new normal but we have to expect that these types of moves will be more common […]
An Example of Forward Looking Due Diligence in System Development
When most investors do due diligence they look at past returns and expect them to persist into the future. Unfortunately, they rarely do. Forward looking due diligence takes past returns with a grain of salt, the goal is to determine where the returns came from and how likely they are to persist. Forward looking due […]
Using Intra-Day Models to Improve Tactical Asset Allocation
Just about any form of tactical asset allocation (TAA) will work extremely well in a straight up market and a straight down market. However, many methodologies will struggle in a choppy market that either has no real trend or that moves so quickly that a TAA strategy just doesn’t have time to adjust. In the […]
Why We Use Counter Trend Models
Counter trend models seek to buy into market weakness and sell into market strength. They expect that markets overreact and will be mean reverting in nature. When the market rallies they expect that the market will go to far and that some of that rally will eventually be retraced. When markets decline they expect that market will overreact and some […]