Image by Andrea Wilkinson sourced from pixabay
Let’s face it; we investors are all after the same thing: return. While individual risk tolerances and expectations might vary, the purpose of investing is universal: to preserve and/or increase wealth using that which we already have. It’s a distinctly human activity. While there may seem like an infinite number of ways to invest—and in fact there are—at the end of the day, I believe you can boil each down to either a discretionary or systematic approach. Why just these two methods? Investing draws heavily upon one’s cognitive ability. Human reasoning operates in just two ways, through induction and deduction. I find that the discretionary and systematic categories align quite well with these.
Today, we are witnessing a seismic shift in the investment markets. “New” quantitative approaches are encroaching upon the turf where fundamental and technical analysts had traditionally grazed. At first these “quants” were largely an afterthought as they were relatively small and relegated to the backwaters of the financial markets. However, that thought is long gone.
Being a fundamental investor myself, I can’t help but wonder if I’m living in an analogy. There was a point in time when Neanderthals were the dominant humanoid species. Several offshoots evolved over the years posing little threat at first. However, when the Homo sapiens arrived … well, we all know how that story ends. I find myself constantly questioning whether I am—professionally speaking—a Neanderthal naively wandering through my career, unaware of my impending fate. Must I upgrade or even radically enhance my skillset in order to survive? After all, I have postulated before that markets constantly evolve.
Driven by both a sense of fascination for the new and a survival-based terror, I found myself immersed in the quant world for a while: reading papers,
