I’m back to chimps this week. It must be the influence of the two chimp-like children who cause chaos in my life. My chimps love snacks and so do real chimps.
A favourite snack of chimps are termites (mine prefer potato chips). Chimps love their crunchy texture. They’ve even devised “tools” to help extricate termites from the mud mounds they live in. They use sticks they prepare to fish for termites. They strip sticks of leaves and chew on the end of the stick to create a paint brush tip that can scoop out termites.
So which chimp stick gets the most termites? It’s hard to tell -- did the termites crawl onto a stick with a bit of luck? Did the tools have some special magic?
How do you tell which chimp is best at making the right tool? Maybe any old stick will do?
These are the answers that the London Quant Finance Group tries to answer. If the market is a termite mound and the termites are yummy returns on your investment, then fund managers (the chimps) use various special tools to extract snacks for themselves (and you the investor). But how much is luck and how much is skill?
On May 12th I attended the London Quantitative Finance Group’s Spring Seminar. It was a lovely Spring day with the conference room opening onto the beautiful gardens of the Royal Geographical Society.
Here the best of the quant finance folks present their analysis of various investing tools in the form of funds, analysis, data, software etc. I won’t bore you with the number & equation details -- to be honest some of it flies over my head. However, I thought I would share some of the nuggets of investing knowledge I took away from the presentations and my conversations with participants.
Data snooping that is often carried out with health care data to improve patient treatments, doesn’t really happen in investing. The professor presenting advocated using data snooping in investing as well. Investors who look backwards to “fit a curve” for a strategy type might think they have found a solution, but it doesn’t mean it will hold true in the future.
HFRI indexes. If you are interested in hedge funds and their performance, but either a) don’t have the cash it takes to get into hedge funds (usually $100,000 - $1 million minimum) (b) have the money, but don’t think you have the skill yet to pick individual funds, you can gain easy access to what hedge funds are doing by buying hedge fund indexes… just a thought.
An interesting research provider called Now-Casting advises central banks collects tons of data on how various parts of the economy are doing. They observe the economic cycle in real time. They produce a free index on the business cycle which is going to be interesting for me to track going forward. Here’s a link to their view on the US business cycle https://www.now-casting.com/countries/united-states/ncihttps://www.now-casting.com/countries/united-states/nci .
A speaker from Thomson Reuters spoke about using social media to drive investment decisions. According to him no one has made sense of Twitter feeds yet. Portfolio managers are after data providers to give them a signal about a company’s prospects based on discussions about the company online.They’ve quantified this as “Buzz” a compilation of how often the news picks up a company (traditional media, blogs, forums etc). Buzz is a proxy for investor interest and large companies get more attention than small companies and technology companies get the most attention! Duh! Think of how Apple and Facebook dominate investor news feeds. That’s good news for investors looking at smaller and less loved stocks. A startup called MarketPsych provides free summary data on the sentiment on various markets https://www.marketpsych.com/. It’s the best thing I’ve seen so far to analyse investor behavior in a number based way -- take a look if that’s of interest.
I spent today at the London Value Investor Conference. I’ll bring you highlights from that in my next post.