What is the Big-Big Picture?

[VAL9000]

Harry + Hal9000>ALL!!!

 

Ugh, now I have to change my alias.

 

[Parsad]

Harry, it's not your sytems that make me laugh.  It's you.

 

You remind me of a kid I went to grade school with named Fred.  Everyone has a Fred in their school.  This was a kid who probably meant well, but always did and said the wrong thing.  For example, Fred would commit crimes against humanity such as asking what airline Air Coryell was or showing up to school wearning Mork rainbow suspenders.  Perhaps the biggest offense was when the teacher sat the class down one day and said that Fred had an announcement.  Going forward he no longer wanted to be called Fred, he wanted to be called Fritz.  You see his father had been stationed in Germany for a year or so and that was where Fred was born.  So even though they weren't German and his given name was not Fritz, he wanted to return to his roots I suppose.  Perhaps today in these more enlightened times this would be seen as a true testament to his spirit, but in those less enlightened days in the 1970s he might as well have walked in with 2 heads and announced that he only followed communist ideas.

 

So what does this have to do with you, Harry?  Periodically you espouse some philosophy of yours and expect everyone to bow down to your brilliance.  When there is opposition, both to the ideas and the way you present it, you get upset, take your ball and go home.  People are neanderthals, they're bullies, etc.  They just don't understand you and how enlightened you are.  After all, you can seemingly discuss value principles, so why can't everyone just discuss your computer-based systems?  Harry, just as you don't walk into a room of grade schoolers and announce you would like to be called Fritz instead of Fred, you don't come onto a value investing board and tell people they don't get investing since they won't discuss your computer systems in a way you find appropriate.  It's both the message and the medium.  Food for thought, Harry.

 

I agree with Fritz...I mean Fred...no, Harry!  Geez Kraven, you've got me all confused.  Now what was Fritz...er, Harry saying?  Cheers!

[Parsad]

In a few years we can see how the MSFT bet goes.

 

Harry's system is shorting it.

 

Will the computer be "eviscerated"?

 

I was short, I covered. How did you like the "short" thread?

 

Geez Harry, not sure because it might have been one of the threads and posts you asked me to delete under threat of libel and slander against people who posted comments you did not like.  Cheers!   

[Parsad]

Harry, what are your returns? :-X

 

PStahley, I don't think Harry is hard of hearing.  Just averse to disclosing his actual returns.  ;D  Cheers!

[Parsad]

Harry, I only have unaudited Contrarian Partners LP returns you sent me in the past from August 2009 to May 2010.  How have the systems been working for you since?  Better or worse?  Cheers!

[Guest HarryLong]

In a few years we can see how the MSFT bet goes.

 

Harry's system is shorting it.

 

Will the computer be "eviscerated"?

 

I was short, I covered. How did you like the "short" thread?

 

I didn't pay much attention to it.  I pay attention to long ideas, and normally ignore the short ones.

 

However why were you shorting a large cap given your thinking around outsmarting the herd of people who follow large caps?

 

Even if any given large cap situation ends up being profitable, overall, the odds in the large cap space are probably stacked against us, and if they are not right now, will increasingly be over time.

 

As you know, I am not a discretionary investor, so I'm not at an inherent disadvantage in the large cap space.

 

Everybody wins with MSFT.  You won because you traded on a dip, and anyone that held on during that period beat the market and will continue to do so I believe if held for a sufficient time.

 

Your point though about being discretionary....

 

I feel the large cap space is going to be one where people basically agree on the future earnings.  I'm not for example going to have any advantage in valuing WFC's 2012 or 2013 forecast versus the experts in the field.  Yet, you take the consensus forecasts of banks for example.  The sector is so out of favor psychologically that they can be cheap and easy to spot as cheap by the discretionary investor without needing to disagree with the consensus earnings estimates (in other words, Mr. Market is at odds with the industry analysts).  So you can just side with the people who spend their lives specializing in covering the banking sector.  A person can easily win if they merely are determined to wait out the turn in psychology, which will come when time passes along.  It doesn't really matter if multiples ever expand -- you just won't do poorly long term making 15-20% earnings yield when the overall market is getting 7%.

 

So just because they are heavily analyzed doesn't mean squat during these exceptional times. 

 

Similarly, Coca Cola was heavily analyzed but any old fool could see that at 40x earnings the long term returns would be poor.

 

So there is no reason to stay away from large caps when the prices are completely out of whack with what reasonable industry experts agree will be the likely earnings.

 

The time to stay away is when the price too closely reflects what they believe will be the future earnings.  In other words, don't try to be a better forecaster of earnings than the industry experts.  Rather, just buy when the market prices the assets in complete disregard for their expert opinions.

 

But they are sometimes totally wrong of course.  What were the 2008 earnings forecasts for Citigroup back in early 2007?

 

But nobody seriously predicts a WFC or a USB is about to go under -- that's not why they're cheap relative to the market as a whole.

 

So very small caps are just different in that you might be the only one covering them.... where that certainly won't be the case with large caps.

 

At any rate, you can play a psychology angle with the large caps (high earnings yield because they are hated) even though you have no information angle.

 

 

Eric, you are exceptionally skilled and will do well no matter what market cap decile you play in. However, I think for the vast majority of discretionary value investors, they would do best to stick to situations in which they have no competition.

 

 

I think making a quick 100% on SURW was a lot easier than making the equivalent return in a money center bank.  ;D

 

And on a % basis, you probably also made more money more quickly in CRVP  ;D

 

And for anyone who played SUR before their buyout offer, that was very easy money as well, with a great underwriter, selling below book  :D

 

There are some other nano-cap situations I am looking at that are dirt simple compared to money center banks.

 

The board is interesting. Guys like bmi love to get freebie ideas like SUR, SURW, FMMH, etc. Everyone likes prize fish. What they don't like is when you start to point out that those fish came from a very specially designed reel outfitted with custom lures  ;D

 

I could keep finding prize fish, or I could become a reel or lure designer. I think the latter creates more lasting intellectual/philosophical/business/mathematical value.

[ERICOPOLY]

In a few years we can see how the MSFT bet goes.

 

Harry's system is shorting it.

 

Will the computer be "eviscerated"?

 

I was short, I covered. How did you like the "short" thread?

 

I didn't pay much attention to it.  I pay attention to long ideas, and normally ignore the short ones.

 

However why were you shorting a large cap given your thinking around outsmarting the herd of people who follow large caps?

 

Even if any given large cap situation ends up being profitable, overall, the odds in the large cap space are probably stacked against us, and if they are not right now, will increasingly be over time.

 

As you know, I am not a discretionary investor, so I'm not at an inherent disadvantage in the large cap space.

 

Everybody wins with MSFT.  You won because you traded on a dip, and anyone that held on during that period beat the market and will continue to do so I believe if held for a sufficient time.

 

Your point though about being discretionary....

 

I feel the large cap space is going to be one where people basically agree on the future earnings.  I'm not for example going to have any advantage in valuing WFC's 2012 or 2013 forecast versus the experts in the field.  Yet, you take the consensus forecasts of banks for example.  The sector is so out of favor psychologically that they can be cheap and easy to spot as cheap by the discretionary investor without needing to disagree with the consensus earnings estimates (in other words, Mr. Market is at odds with the industry analysts).  So you can just side with the people who spend their lives specializing in covering the banking sector.  A person can easily win if they merely are determined to wait out the turn in psychology, which will come when time passes along.  It doesn't really matter if multiples ever expand -- you just won't do poorly long term making 15-20% earnings yield when the overall market is getting 7%.

 

So just because they are heavily analyzed doesn't mean squat during these exceptional times. 

 

Similarly, Coca Cola was heavily analyzed but any old fool could see that at 40x earnings the long term returns would be poor.

 

So there is no reason to stay away from large caps when the prices are completely out of whack with what reasonable industry experts agree will be the likely earnings.

 

The time to stay away is when the price too closely reflects what they believe will be the future earnings.  In other words, don't try to be a better forecaster of earnings than the industry experts.  Rather, just buy when the market prices the assets in complete disregard for their expert opinions.

 

But they are sometimes totally wrong of course.  What were the 2008 earnings forecasts for Citigroup back in early 2007?

 

But nobody seriously predicts a WFC or a USB is about to go under -- that's not why they're cheap relative to the market as a whole.

 

So very small caps are just different in that you might be the only one covering them.... where that certainly won't be the case with large caps.

 

At any rate, you can play a psychology angle with the large caps (high earnings yield because they are hated) even though you have no information angle.

 

 

Eric, you are exceptionally skilled and will do well no matter what market cap decile you play in. However, I think for the vast majority of discretionary value investors, they would do best to stick to situations in which they have no competition.

 

 

I think making a quick 100% on SURW was a lot easier than making the equivalent return in a money center bank.  ;D

 

And on a % basis, you probably also made more money more quickly in CRVP  ;D

 

And for anyone who played SUR before their buyout offer, that was very easy money as well, with a great underwriter, selling below book  :D

 

There are some other nano-cap situations I am looking at that are dirt simple compared to money center banks.

 

The board is interesting. Guys like bmi love to get freebie ideas like SUR, SURW, FMMH, etc. Everyone likes prize fish. What they don't like is when you start to point out that those fish came from a very specially designed reel outfitted with custom lures  ;D

 

I could keep finding prize fish, or I could become a reel or lure designer. I think the latter creates more lasting intellectual/philosophical/business/mathematical value.

 

You can catch most species on a woolly bugger.  Even when they are sipping tricos.

 

[Dorsia1]

Harry,

 

I hope nobody from this board followed you into MNTG.

You LOVE mentioning your winners.

You are a smart guy. How about starting a thread about your losers. It would probably be more instructive.

Also, out of curiousity, if your computer "systems" are that effective, what do you actually bring to the table as someone running a portfolio?

[AZ_Value]

Seriously dude, is it because the computers are doing all the work that you have so much time on your hands?

 

And if Sanjeev is right and when everybody asked for your long term results (I'm sorry, I mean your computer's results) you provided him with Aug 2009 through May 2010 returns then I find it pathetic and disingenuous. So why are you trying to sell us on some "system" if yourself don't trust it enough to show us how well it's done for you and your family over the years?

This is just crazy. If whatever you say is true you could win this argument in 2 minutes and put it to rest for good instead you chose to make it a recurring theme for your own enjoyment I suppose.

[bmichaud]

That's an interesting jab from someone that won't answer simple questions. The only idea in my portfolio that has anything to do with this board is Clearwire, and I was the one who started the thread for CLWR. Yes they discussed clwr on the lvlt thread, but I found that out after the fact. My strategy differs very much from the small-cap focused nature of the board, so it offends me you would accuse me of poaching ideas without ANY basis for saying so. Until you can back up your arrogance with actual performance, then shut the eff up. Here is my current portfolio in no particular order (unlike yourself, I am 100% fine with full disclosure - grow some balls)...

 

mcd, irm, sle, clwr, gdxj

 

As you can see, I have my own strategy and outlook on things that have almost nothing to do with this board. I use the board to LEARN, not to poach. I agree with some things and disagree with other things on this board - only reason I so vehemently oppose your posts is the rank disgusting arrogance that permeates everything you say.

 

 

 

In a few years we can see how the MSFT bet goes.

 

Harry's system is shorting it.

 

Will the computer be "eviscerated"?

 

I was short, I covered. How did you like the "short" thread?

 

I didn't pay much attention to it.  I pay attention to long ideas, and normally ignore the short ones.

 

However why were you shorting a large cap given your thinking around outsmarting the herd of people who follow large caps?

 

Even if any given large cap situation ends up being profitable, overall, the odds in the large cap space are probably stacked against us, and if they are not right now, will increasingly be over time.

 

As you know, I am not a discretionary investor, so I'm not at an inherent disadvantage in the large cap space.

 

Everybody wins with MSFT.  You won because you traded on a dip, and anyone that held on during that period beat the market and will continue to do so I believe if held for a sufficient time.

 

Your point though about being discretionary....

 

I feel the large cap space is going to be one where people basically agree on the future earnings.  I'm not for example going to have any advantage in valuing WFC's 2012 or 2013 forecast versus the experts in the field.  Yet, you take the consensus forecasts of banks for example.  The sector is so out of favor psychologically that they can be cheap and easy to spot as cheap by the discretionary investor without needing to disagree with the consensus earnings estimates (in other words, Mr. Market is at odds with the industry analysts).  So you can just side with the people who spend their lives specializing in covering the banking sector.  A person can easily win if they merely are determined to wait out the turn in psychology, which will come when time passes along.  It doesn't really matter if multiples ever expand -- you just won't do poorly long term making 15-20% earnings yield when the overall market is getting 7%.

 

So just because they are heavily analyzed doesn't mean squat during these exceptional times. 

 

Similarly, Coca Cola was heavily analyzed but any old fool could see that at 40x earnings the long term returns would be poor.

 

So there is no reason to stay away from large caps when the prices are completely out of whack with what reasonable industry experts agree will be the likely earnings.

 

The time to stay away is when the price too closely reflects what they believe will be the future earnings.  In other words, don't try to be a better forecaster of earnings than the industry experts.  Rather, just buy when the market prices the assets in complete disregard for their expert opinions.

 

But they are sometimes totally wrong of course.  What were the 2008 earnings forecasts for Citigroup back in early 2007?

 

But nobody seriously predicts a WFC or a USB is about to go under -- that's not why they're cheap relative to the market as a whole.

 

So very small caps are just different in that you might be the only one covering them.... where that certainly won't be the case with large caps.

 

At any rate, you can play a psychology angle with the large caps (high earnings yield because they are hated) even though you have no information angle.

 

 

Eric, you are exceptionally skilled and will do well no matter what market cap decile you play in. However, I think for the vast majority of discretionary value investors, they would do best to stick to situations in which they have no competition.

 

 

I think making a quick 100% on SURW was a lot easier than making the equivalent return in a money center bank.  ;D

 

And on a % basis, you probably also made more money more quickly in CRVP  ;D

 

And for anyone who played SUR before their buyout offer, that was very easy money as well, with a great underwriter, selling below book  :D

 

There are some other nano-cap situations I am looking at that are dirt simple compared to money center banks.

 

The board is interesting. Guys like bmi love to get freebie ideas like SUR, SURW, FMMH, etc. Everyone likes prize fish. What they don't like is when you start to point out that those fish came from a very specially designed reel outfitted with custom lures  ;D

 

I could keep finding prize fish, or I could become a reel or lure designer. I think the latter creates more lasting intellectual/philosophical/business/mathematical value.

[anders]

@ Harry,

 

You seem to be a smart guy and Im sure you will find prosperity and success in your life..

 

There is one thing though that many quants in finance tend to forget.. or choose to ignore..

 

Quantum Finance is not the same as Quantum Physics -- very important point.

 

If you work within the field of physics and one morning you come up with a theory, there might be a chance in hell that you are actually correct. This since physics is governed by laws and math. In quantum finance, these laws cannot become true since human behavior is part of the equation, and you will never be able to calculate the natural instincts of human beings..

 

An example, if you go in to a store and buy a bottle of coca cola, it will cost you a dollar. If a computer do the same it will cost a dollar. However, if you come into the store to buy 100 bottles, you might want to discuss a discount and pay 99 or 95 dollars. But your computer will be programmed to purchase it for 100. This since programmed mathematical equations are linear -- and the world of business is not..

 

But hey, "techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising 'Take two aspirins'?" -- I took that one from Warren Buffett ;)

 

My two cents,

 

[Parsad]

Seriously dude, is it because the computers are doing all the work that you have so much time on your hands?

 

And if Sanjeev is right and when everybody asked for your long term results (I'm sorry, I mean your computer's results) you provided him with Aug 2009 through May 2010 returns then I find it pathetic and disingenuous. So why are you trying to sell us on some "system" if yourself don't trust it enough to show us how well it's done for you and your family over the years?

This is just crazy. If whatever you say is true you could win this argument in 2 minutes and put it to rest for good instead you chose to make it a recurring theme for your own enjoyment I suppose.

 

No, no, he provided those results long before.  His results may be better or worse from then.  I don't know what they are like now, and that's why I asked.  It was over a very short time period, and from what I saw, systems did not provide any advantage whatsoever.  There were also 3 and 5 year lockups. 

 

If I had a five year lockup, I could get 18-20% a year for partners.  Lockups provide enormous advantages!  But I personally would not feel comfortable being locked up with a manager for five years, so that is why we have no lock-up.  It's the partner's money and they should have access to it if needed.  It just means I have to be that much better at my job, and I can live with that if it gives them more comfort.  Cheers!   

[Guest HarryLong]

I. The debate was pretty simple. If you accept that the BarclayHedge Systematic Traders Index has done better than the S&P 500, there is no debate--systematic ideas have currency.

 

II. I'm not trying to sell anyone on anything--hence no personal disclosure.

 

III. Everyone could benefit from systematizing their work. Let's say someone like to use certain PEG ratios, combined with other factors. By testing certain rules in historical databases. then with walk-forward testing, one might get clues as to whether those ideas have currency.

 

IV. By first making rules explicit, you can then test them.

 

V. If you have a method you think is great, excellent, why not systematize it?

 

Stop getting emotional and throwing around personal attacks. If you disagree, just say, "I agree with x", "I disagree with y" etc, like adults, the way Ericopoly and Rrjan do, etc.

 

If you can't simply state your agreement or disagreement, and reasons, without making it personal, then you're not really adding to the discussion in a meaningful way (and are probably proving with your emotionalism that it will become harder and harder for you to beat good bots as technology evolves).

 

Try to remember something else as well. Given the way technology tends to progress (exponentially), today bots are as primitive as they will ever be. They are only getting better. Until we start augmenting our wetware biology with implantable computers, or genetic engineering, etc, most human brains are only increasing in IQ at the speed of the Flynn effect (http://en.wikipedia.org/wiki/Flynn_effect).

 

If you disagree, no problem, just state why. No anger needed or necessary if your points are correct.

 

 

[moore_capital54]

Harry may I ask if the constituents of the BarclaysHedge Systemtic include HFT Funds? Because as far as I know, based on personal experience, The only systematic funds that in fact perform better than humans are HFT's which imo should be outlawed.

[moore_capital54]

Here is an interesting post I Found online relating to this topic:

 

In fact, most decent HFT shops have never had a down quarter. Indeed the very best handful of HFT shops have never had a down day. Of course, HFT doesn't manage a large pool of money since they have to be out by the close. So the real question is whether it's possible to be consistently profitable when carrying overnight risk.

 

I find it hard to believe that a group of the best sytematic funds with overnight exposure, would outperform a group of the best human run funds on a long-term basis. It just sounds silly. Remember the coin flipping argument.

 

My hunch is that within that index you have been relying on are constituents which are in fact HFT, and end the day with cash, and no overnight exposure. In which case you are comparing apples to oranges.

 

The Quant funds using systems to value securities and deploying capital long-term are duds, in the case of Simmons he uses the performance of medallion which is HFT to lure sheep into his value based quant funds, extracting handsome fees for mediocre performance.

 

 

[Guest]

Seriously dude, is it because the computers are doing all the work that you have so much time on your hands?

 

And if Sanjeev is right and when everybody asked for your long term results (I'm sorry, I mean your computer's results) you provided him with Aug 2009 through May 2010 returns then I find it pathetic and disingenuous. So why are you trying to sell us on some "system" if yourself don't trust it enough to show us how well it's done for you and your family over the years?

This is just crazy. If whatever you say is true you could win this argument in 2 minutes and put it to rest for good instead you chose to make it a recurring theme for your own enjoyment I suppose.

 

No, no, he provided those results long before.  His results may be better or worse from then.  I don't know what they are like now, and that's why I asked.  It was over a very short time period, and from what I saw, systems did not provide any advantage whatsoever.  There were also 3 and 5 year lockups. 

 

If I had a five year lockup, I could get 18-20% a year for partners.  Lockups provide enormous advantages!  But I personally would not feel comfortable being locked up with a manager for five years, so that is why we have no lock-up.  It's the partner's money and they should have access to it if needed.  It just means I have to be that much better at my job, and I can live with that if it gives them more comfort.  Cheers! 

 

Sanj, have you thought about setting up a fund like that? I would think a lot of partners would easily do something like that.

[bmichaud]

Harry you still have not reconciled your definition of an enterprising investor with mine. That would be a big help since my unemotional argument to you was that this board is focused on the enterprising investor, which is not at all "bot" investing.

 

Please reconcile.

 

Thanks

[Parsad]

Sanj, have you thought about setting up a fund like that? I would think a lot of partners would easily do something like that.

 

If I'm not comfortable doing that with another manager, then how can I expect anyone to do it with me?  Although I'm happy locking up my own money with myself!  ;D  Cheers!

[Carvel46]

Creating a checklist 3 years ago, helped me take some emotion out of investing. HarryLong, what % of your time do you allocate to improving your computer system vs. researching ideas? I'd like to understand how you use your computer system. It seems you trust the system because you've built it and understand the inputs. The problem to me is that not all key inputs, when valuing a business, are quantifiable and I'm not comfortable with momentum investing. What level of human judgment goes into implementing your system--once the ideas emerge?

 

Also, I'm curious what type of model/system/screen you pulled SURW from? I'm assuming it's a pre-capex cash flow/EBITDA screen.

 

Thanks

[Guest HarryLong]

Hi Carvel and Bmi, thanks for the questions. Will try to get to them. Just enjoying the last bits of the break.

[Guest HarryLong]

Creating a checklist 3 years ago, helped me take some emotion out of investing. HarryLong, what % of your time do you allocate to improving your computer system vs. researching ideas? I'd like to understand how you use your computer system. It seems you trust the system because you've built it and understand the inputs. The problem to me is that not all key inputs, when valuing a business, are quantifiable and I'm not comfortable with momentum investing. What level of human judgment goes into implementing your system--once the ideas emerge?

 

Also, I'm curious what type of model/system/screen you pulled SURW from? I'm assuming it's a pre-capex cash flow/EBITDA screen.

 

Thanks

 

OK, so I will try to answer your question indirectly. So, long story short (no pun intended), if you're a quant fundamental market neutral fund, you will be essentially scoring longs and short. If you and I sat down in a room for 3 hours, we would basically go through all of the intuitive fundamental things that make something a good or bad company, then we would score them according to an equal weighted schema, or one which was weighted according to the most predictive factor for over/under performance. Then, we would have some liquidity filters so we could enter/exit 20-200 positions on each side (long and short), then we would of course be continually doing this, refining our criteria, etc.

 

The problem with the above is that all of the criteria/factors we could use to score companies are highly intuitive, which is why the quant fundamental equity market neutral strategy blows up every 7 years  :-[

 

So, not only do you need predictive factors/criteria, but ideally, you don't want them to be intuitive.

 

Of course, if you understand my answer, you will also understand the reason why when markets go crazy, a lot of discretionary fundamental value players sometimes blow up as well, or have dismal years. C'est la vie.

[AZ_Value]

Seriously dude, is it because the computers are doing all the work that you have so much time on your hands?

 

And if Sanjeev is right and when everybody asked for your long term results (I'm sorry, I mean your computer's results) you provided him with Aug 2009 through May 2010 returns then I find it pathetic and disingenuous. So why are you trying to sell us on some "system" if yourself don't trust it enough to show us how well it's done for you and your family over the years?

This is just crazy. If whatever you say is true you could win this argument in 2 minutes and put it to rest for good instead you chose to make it a recurring theme for your own enjoyment I suppose.

 

 

No, no, he provided those results long before.  His results may be better or worse from then.  I don't know what they are like now, and that's why I asked.  It was over a very short time period, and from what I saw, systems did not provide any advantage whatsoever.  There were also 3 and 5 year lockups. 

 

If I had a five year lockup, I could get 18-20% a year for partners.  Lockups provide enormous advantages!  But I personally would not feel comfortable being locked up with a manager for five years, so that is why we have no lock-up.  It's the partner's money and they should have access to it if needed.  It just means I have to be that much better at my job, and I can live with that if it gives them more comfort.  Cheers! 

 

Actually my underlying point was that people on this board are smart enough to know that someone providing results from Spring 2009 through May 2010 is not much different from cab drivers back in 1998 telling you how much their investing acumen allowed them to generate great results by picking great stocks like what-else-is-new.com

[Tim Eriksen]

I. The debate was pretty simple. If you accept that the BarclayHedge Systematic Traders Index has done better than the S&P 500, there is no debate--systematic ideas have currency.

 

....

 

If you disagree, no problem, just state why. No anger needed or necessary if your points are correct.

 

Harry:

 

You have a serious problem with your first point.  The index has NOT outperformed the S&P500.  From Jan 1987 through the end of 2010 the S&P500 is slightly better.  Yes, I looked at the page 2 numbers of the Acorn paper which look good; however, I also put the annual returns of both into a spreadsheet and the S&P500 did better.  There is a substantial error in the chart by Acorn.  Check and see.

 

Secondly the quant index is significantly helped by the 63% return in 1987, so it is benefiting from a good starting point, yet still falls slightly short of the S&P500.   

 

Is there some value in the strategy?  It certainly looks like the quant approach does better than the S&P500  in down years.  It would probably complement an indexed portfolio nicely. 

 

All that said, we as value investors believe we can outperform the S&P500 - either by matching the returns with less risk or surpassing the returns with commensurate risk.  I know I certainly have.

 

Tim

[Ballinvarosig Investors]

Harry, are you familiar with Plato's Allegory of the Cave?

 

[Ballinvarosig Investors]

Computer systems are not hampered by emotion, so if one wishes to compete with them, one must become more-computer-like and less emotional (aka, prone to personal attacks, psychological distortions, etc).

Even with the most soundest of systems, surely there will always be a dependency on human emotion? Suppose back in 2007, we had a universe that consisted of entirely of funds run by similar performing, computer-based, systematic approaches. As investors start pulling their capital from funds (human are irrational, it won't matter to them that their systematic approach works), the systematic approach will still get clobbered in a wave of forced selling and liquidity being pulled?