A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Mathematician Jim Simons is legendary.
Mr. Simons is lead manager of the Medallion fund, which has generated pre-fee returns of over 60 per cent annually since 1988. If there’s one person in the world who can be said to have solved equity markets, it’s him and his team of PhDs, who have been understandably secretive about their investing algorithms.
A new book by author Gregory Zuckerman tried to uncover the detail behind the success of the fund, and Ben Carlson from the A Wealth of Common Sense blog interviewed Mr. Zuckerman to hear what he learned,
“Most quant investors employ multiple models or sleeves within their main strategies. Simons decided the Medallion fund would use a single model to make things easier … Know who’s on the other side of your trades. If Renaissance made $100 billion in profits that means someone had to be on the losing end of their trades. One of their researchers joked it was mostly overconfident dentists who frequently traded that they took advantage of… Simons had come around to the view that the whys didn’t matter, just that the trades worked… Many investors claim to take advantage of human nature. Ren tech actually does it.’
The entire interview is worth a read.
“Non-Intuitive Lessons From the Man Who Solved the Market” – Irrelevant Investor
Citi strategist Hong Li published research showing the U.S. stocks and sectors with the highest degree of investor crowding,
“Low Vol (Low Beta) underperformed the most in October. However, it remains the most crowded, with historically high valuation and macro risk. Cyclicals and defensive industry groups were mixed in terms of the largest one-month change in crowding (Figure 2). Looking at the industry group recommendations from our US Equity Strategy team, we note that the overweight industry groups Pharma/Biotech and Energy were among the larger monthly declines in crowding, while the underweight, Utilities, was among the larger monthly increases in crowding.’
BCE was listed among stocks with sell ratings by Citi analysts and a high degree of crowding.
“@SBarlow_ROB C: BCE among most crowded stocks with Citi analyst sell rating” – (table) Twitter
The Financial Times reports that U.S. investors are getting bullish in a hurry,
“Mutual funds and exchange traded funds that invest in global equities attracted $7.5bn for the week ended Wednesday, according to EPFR Global… Investors responded favourably to reports that the US and China could remove some tariffs in a partial trade deal currently under discussion… “The primary catalyst is that the data got better,” [Jim Paulsen, chief investment strategist of the Leuthold Group] said. “There is a pretty concerted message in the markets across asset classes that activity is picking up. If you think what was leading much of this year — gold, bonds, defensive sectors — that has really changed.”
“Money rushes into equity funds as trade war fears ease” – Financial Times (paywall)
Diversion: “Model this dopamine fast” – Marginal Revolution
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