September 21, 2012
Attain Capital
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It’s hard to be in finance and not be number nerds. But at the end of the day, is math alone enough to make you competitive? Josh Brown at the Reformed Broker hit the nail on the head:
All professional investors worth speaking of have these basic foundations, this understanding of the math involved in stock selection and allocation. Whether they reach the best conclusions or actually put these mathematical understandings to rigorous use is not the same thing – the world is filled with intelligent people who are lazy.
I bring this up because I put up a throwaway post the other day called Math is Not an Edge and everyone got really mad about it. Especially Robert Seawright, one of my fave financial bloggers, who disagrees. He says that math is, in fact, an edge.
Let me give you three reasons I still believe I am right:
1. Back in the day, investors would flip through their Value Line booklets and pore over SEC filings for the very basic details about company fundamentals that are now freely available on hundreds of different financial websites and apps. You cannot argue that this is edge-producing math. You could say that the interpretation of how this data will affect a stock’s future price is your edge, but that is NOT MATH, it is ANALYSIS. Not the same thing.
2. The main reason so many of you have argued with me is based on a misunderstanding – I am not saying the math doesn’t matter, I am saying math is not an edge in and if itself because it is the starting point and the commonality between most experienced investors is that they all understand it. Again, it is the foundation.
3. You know who was really good at math? This f^&%$#$ idiot. Probably better at math than you are. Again, he has the foundation in that he knows all the calculations and ratios that everyone else knows. But that was not his edge.
So I say again, once we all agree on the math – then it’s time to tell me something I don’t know.
Yep, Brown gets it right again, but we’re left conflicted when his logic gets extended to managed futures. On one hand, particularly in trend following, mathematically driven trading- where you don’t have to worry about a boneheaded CEO or a botched acquisition – does provide an edge. There’s no human element – just numbers. It takes the emotion out of commodity trading, where your signals guide the trading, and the final arbiter of the trade is math. At the risk of sounding like former President Clinton, it’s arithmetic, and we’re more than happy to stand by it. It won’t give you a win every day of the week, and past performance is not necessarily indicative of future results, but as we’ve written before, these programs have served us well in the long-term.
However, at the same time, it’s fair to say it’s not JUST math that gives the space an edge. The ability to calculate Bollinger bands or have dynamic position sizing based on a volatility formula doesn’t give CTAs an edge. It is a tool. It’s how you use the tool which provides the edge. Just like handing over Albert Pujol’s bat or Rafael Nadal’s racket wouldn’t give you and edge in hitting a major league fastball or returning Roger Federer’s serve – simply using the math everyone else uses doesn’t give you an edge.
Bottom line? Mathematically driven strategies have advantages, but the brains behind the algorithmic arrangements are the edge.
Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
See the full terms of use and risk disclaimer here.
Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
See the full terms of use and risk disclaimer here.