Many investors hassle to go on with the right investment method. There are many investments method, so moving on with the right choice seems to be somewhat complicated as investors get perplexed often. The most widely used method of investment by money managers are Asset Allocation, Modern Portfolio Theory, Fundamental / Technical Analysis and Market Timing. When risk are minimized in these methods they fail to provide consistent results and as usual all these methods have pros and cons.
Hats off to new technological advances, as it make the method easier as well as yields better results by its effective tool. A new breed of smart manager now study exactly which indicators have worked under past market conditions and which elements of each methods have been successful by using sophisticated and powerful computers. By this approach they combine the best . This methodology is known as Formulaic or Quantitative Investment.
Let us have a overview on the principles of Quantitative Investment and how to use them to approach investment formulas:
1. The first step is to set up investment rules.
2. Have a research on the past market conditions, purely with statistics and then record the performance that followed.
3. Make a note of it when you get the clear pattern and have them monitored.
4. Determine the investment allocation and individual security selection based on the pattern you derived. Since it is purely formulaic human emotions are not paid attention and right allocation are alone considered.
5. The selected company are held until it no longer meet the requirements.
Each model should be back-tested by using data from the past market conditions such as previous years and even the previous days. By this one could derive a conclusion of exactly what a particular model would look like when subjected to market fluctuation.
Hats off to new technological advances, as it make the method easier as well as yields better results by its effective tool. A new breed of smart manager now study exactly which indicators have worked under past market conditions and which elements of each methods have been successful by using sophisticated and powerful computers. By this approach they combine the best . This methodology is known as Formulaic or Quantitative Investment.
Let us have a overview on the principles of Quantitative Investment and how to use them to approach investment formulas:
1. The first step is to set up investment rules.
2. Have a research on the past market conditions, purely with statistics and then record the performance that followed.
3. Make a note of it when you get the clear pattern and have them monitored.
4. Determine the investment allocation and individual security selection based on the pattern you derived. Since it is purely formulaic human emotions are not paid attention and right allocation are alone considered.
5. The selected company are held until it no longer meet the requirements.
Each model should be back-tested by using data from the past market conditions such as previous years and even the previous days. By this one could derive a conclusion of exactly what a particular model would look like when subjected to market fluctuation.
