As long as the market existed, participants of the market have been trying to find the magic wand to turn their investments into fortunes. Now they have the new and exciting tools that usually are described as robo investing. Is that working for them?
We are at the early stages of this exciting experiment and only time will show if this works better than a “Wonderful Human Mind”.
One pattern that is very useful is a very simple momentum play discovered by Dr. Clifford Asness – he received a PhD. for this work and got three billion dollars to manage (AQR Capital Management).
He formalized the strategy known as momentum factor”. Basically, it says that if the stock starts to go up, it will continue to do so for some time. There are many factors like that to consider. Just to name a few: book-to-market ratio, P/E Ratio, 50 days moving average, Bollinger Bands, etc.
However, the ability of the manager to play chess is not a factor. Of course, computers are very good at analyzing multiple factors, and there are many new ETF’s that completely rely on factor analysis. There is a claim that factor investing will replace one day even the best fund managers.
We are at the beginning stages of this experiment. Let’s wait and see – but be very careful before jumping on the bandwagon of completely stripping your investments from a human touch.