As an investor, you need two things:
- A criterion that predicts where the next investment will be (which asset classes) based on market research and psychological criteria. The human “investment judgement” will also need to be supplemented by quantitative market research that assesses the opportunities against wide sources of financial information. Based on the outcome of both, the investor then gains exposure to that asset class.
- A trading strategy that sets the rules that can be followed. Effectively one or more algorithms that highlight assets ready to boom and a system, with risk controls, to take advantage.
Filtering criteria to identify sectors/assets that are “undervalued” and have potential growth perspective, nevertheless also recognize sectors/assets out of favor that market values have been pushed below their true worth. After that identify factors that might change market perception and obviously also identify any true reasons why things are as they are.
Using Angler Analytics quantitative rating model to shortlist candidates such as asset classes or individual stocks you then analyze the shortlist to weed out the obvious non-starters based on a wider knowledge of the financial press.
You have a mathematical approach to financial markets and how the markets behave.
According to market theory, markets behave rationally and the given price of an asset in a free market is based on all public market information. This is only part of the story.
I have a different view of financial markets and observe that they do not move rationally some, or indeed all, of the time. The missing element is psychology and human behavior. The history of financial markets is characterized by a series of bubbles in asset prices which are driven by a massive herd of investors who follow the latest “new thing”.
There is substantial capital chasing returns on assets and this “hot money” moves fairly rapidly from one asset class to another. When the spotlight falls on an asset class that is undervalued, or is perceived as undervalued, the prices of these assets inflate, usually to levels far in excess of their fair value, as more money piles in.
It seems that the trick to making money is recognizing these assets before the herd and investing before the values become too inflated. Having jumped on the wave you can either actively trade in and out of the asset taking profit/hedging the downside on a daily, hourly, minute by minute basis or simply take a long position and cash out at a pre- agreed profit condition. Nota Bene, as bubbles inevitably burst it is important to be disciplined and not too greedy and have rules you stick to.
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Disclaimer
Any opinions, views, news, research, analyses, prices or other information contained on this website is provided as general market commentary and are not intended to constitute investment advice. Angler Analytics LTD will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
