Weekly Recap 7/27/2018: A New Investment Model
by Zach Marsh on Jul 27, 2018
S&P 500 +0.60%
10 Year Treasury -0.47%
Weekly Update: A New Investment Method
Trump, trade, Russia, Mueller, 9-year bull market, yield curve flattening and interest rates on the rise. Against what would appear to be all sensible reasoning, week after week the market continues to grind higher and higher. After six months trying to recoup its February losses, the S&P 500 is almost back to the highs it set in late January. While it seems hard to believe that this late in the cycle we could still be experiencing simple 10% corrections, instead of deeper recessionary bear markets, the market seems to be telling us otherwise.
Supporting our most recent newsletters, the defiance of this market illustrates the challenges involved with basing investment decisions on narrative reasoning. Rather, if we tune out the cacophonous noise of the news, muffle our preconceived ideas rooted in fear and greed, and instead listen to the sounds and the rhythm of the market price movement we can perhaps better project market direction. We mentioned last week that quantitative methods can help us achieve this end. Systems and algorithms keep us committed to a process rather than a hunch or intuition.
Recently, we have been developing our own quantitative investment strategy which combines many of the elements of the risk parity process, balancing investments according to the risk they contribute to the overall portfolio, with a methodology for selecting investments projected to outperform in the near-term based upon recent price momentum. This helps our investment portfolio adapt and adjust to its environment. Our method of measuring momentum was designed through data analysis. We diligently poured through data. We arrived at, what we’ve determined to be, appropriate criteria for ranking asset performance and relative momentum. We neither argue nor debate with the results, that would be allowing the negative impacts of narrative reasoning to creep into our decision making process.
We understand that no system is flawless. In fact, the market has a way of pricing out perfection and certainty. Therefore, we never stop working to improve our investment strategy. We strive for perfection knowing it is impossible but realizing that continues to push us forward. We learn not through arrogance, but rather through the humbling process of never being completely satisfied. We are very excited to bring you these changes and updates to your investment portfolio.
Thank you for your support and thanks for reading,
Zach and Dave