We employ three essential investment philosophies:
- A quantitative and systematic trading methodology with robust risk management
- Diversification across multiple non-correlated models
- Capital efficient and reduced drawdown risk to preserve capital, eliminate large tail risk, and improve risk adjusted return
Advantages of using a quantitative and systematic trading methodology:
- Discipline and process orientation: A systematic quantitative methodology has clear rules for entry/exit of trades, defined trade goals and risk controls which bring discipline into the process of trading and investing. This has significant advantages over the long-run.
- Avoiding human emotional biases: A systematic process helps avoid human cognitive biases, from the most basic greed/fear cycle (which happen at the big trend change points, impacting the returns/risk and long-term track record the most) to others like recency bias, confirmation bias, endowment effect and disposition effect.
Diversification across multiple non-correlated models:
- Recognizing that every model or trading methodology will perform poorly at some point based on market conditions, utilizing a portfolio of models which have low correlations with each other in losing periods (meaning that majority of them are not losing together at the same time) reduces portfolio risk, thereby helping avoid large losses. If each individual underlying model has an attractive return profile to begin with, then a portfolio of such models leads to a reduction in risk without a commensurate reduction in returns, effectively driving the reward:risk ratio even higher.