“ REVERSE ACTIVE MANAGEMENT”
Because of our propriety valuation system we are confident that any names the investment process puts forward are worthy of investment as they now meet all of our rigorous criteria and provide enough upside / downside to make the trade worthwhile to initiate.
What our system can not do however is the “common sense” investing. It is very important to stress that at this stage of the process we are only ever looking to NOT initiate a trade…..we are only looking to REJECT them.
This is the reverse procedure that most fund management houses follow as they are by now only looking to reinforce their beliefs in a stock and are actively looking for data / research or views that are conforming to their own personal views.
We believe that by actively looking to NOT initiate a trade, we are further distancing ourselves from the company and ensuring we are not emotionally involved with any of our positions.
While our system may be very good at valuing companies, what it does not do is understand either them or indeed the markets. This is where we manually step in and pull a trade if it is obvious that it is the wrong trade to initiate.
As stated previously, we are not allowed to ignore a trade if we don't currently like the market or the sector it is in. Nor can we ignore a trade if we have a particular view about the management of the company. We would see this as being emotive and we have designed our process on the basis of being emotionally detached from every position we take…..after all, our process has arrived at the name by using the consensus data, we are not standing against the market.
Where we do step in, it is for glaring obvious reasons. For example, if our investment process said that it wanted to short a Taiwanese asset reflation play into a local election, then we would not initiate the trade. The reason for this is that these are the exactly the stocks that go up in these conditions, and by shorting them, then we would lose money on the trade. This is where our experience of the markets comes into play.
Some people ask if we would therefore buy these names, knowing that historically they go up in the above case. The answer is no, as the investment process is telling us that the stock is overvalued, and we do not trade on the back of momentum / beta if the stock is not flagged as a buy. We stick rigorously to the discipline that we have built into our process.
What our system can not do however is the “common sense” investing. It is very important to stress that at this stage of the process we are only ever looking to NOT initiate a trade…..we are only looking to REJECT them.
This is the reverse procedure that most fund management houses follow as they are by now only looking to reinforce their beliefs in a stock and are actively looking for data / research or views that are conforming to their own personal views.
We believe that by actively looking to NOT initiate a trade, we are further distancing ourselves from the company and ensuring we are not emotionally involved with any of our positions.
While our system may be very good at valuing companies, what it does not do is understand either them or indeed the markets. This is where we manually step in and pull a trade if it is obvious that it is the wrong trade to initiate.
As stated previously, we are not allowed to ignore a trade if we don't currently like the market or the sector it is in. Nor can we ignore a trade if we have a particular view about the management of the company. We would see this as being emotive and we have designed our process on the basis of being emotionally detached from every position we take…..after all, our process has arrived at the name by using the consensus data, we are not standing against the market.
Where we do step in, it is for glaring obvious reasons. For example, if our investment process said that it wanted to short a Taiwanese asset reflation play into a local election, then we would not initiate the trade. The reason for this is that these are the exactly the stocks that go up in these conditions, and by shorting them, then we would lose money on the trade. This is where our experience of the markets comes into play.
Some people ask if we would therefore buy these names, knowing that historically they go up in the above case. The answer is no, as the investment process is telling us that the stock is overvalued, and we do not trade on the back of momentum / beta if the stock is not flagged as a buy. We stick rigorously to the discipline that we have built into our process.