Quantitative Investing – Finally coming of Age in India?
1 min readThe Man Who Solved the Market – Jim Simons compounded wealth at a rate 3 times (72% CAGR) that of Buffet. The book gives you two valuable insights. Firstly, The statistical odds of you replicating these returns are zero. (sorry to pop the bubble). But most importantly it reiterates an important belief – there are 1000 ways to skin a cat.
This cat is the stock market. While Old school value investing will be evergreen, it is not the only way to add that alpha to your portfolio. This is where Quantitative Investing kicks in – Making use of math/stat models to study behaviors of asset classes. In a nutshell quant strategies are broadly in these 4 categories;
Statistical Arbitrage – Typically long/short strategies that look for mispricing b/w securities. Factor Investing – Selecting stocks/asset classes that have common characteristics that have led to outperformance in markets. Mathematical certainties – Events like Theta decay, Mean reversion are a certainty. Quant strategies try and exploit them in the most risk-adjusted way possible. Tactical asset allocation – A quant strategy that shifts the weight of assets in a portfolio to take advantage of market anomalies. Also known as regime-switching.
The world is moving to Quant Investing in a big way. Here is hoping India does too.