Embracing What’s Working Now
Long-time readers have watched my thoughts on certain subjects evolve over time. Blogging for as long as I have (egad…almost 5 years now), about such a difficult to wrangle subject, necessitates it.
Something I’ve come full circle on is whether my trading should focus more on concepts that have existed for a very long time (like trend-following or TAA), or whether it should focus on concepts that are unlikely to be here in a decade, but are here in a BIG way today (like short-term mean-reversion used to be, or volatility trading is today).
Once upon a time, before MarketSci was even a twinkle in my eye, I was focused on the latter – those anomalies that we enjoy here and now.
I was all about buying stocks on dips, starting every day with a cup of coffee and a couple hundred deeeeeep limit orders.
Eventually I moved on to other things, including short-term mean-reversion, which is what I was trading when I launched MarketSci back in 2006. Times were very good until 2009/10 when that anomaly began to dry up.
Through all of that I knew I was trading ideas that were making big money today, but would probably look very different in a decade. But that was okay. As long as I kept researching, there would always be the next anomaly to capitalize on.
A few years ago I began to question that perpetual state of research and put a big toe in the water on longer-term concepts like trend-following and tactical asset allocation.
Now, I’m not going to poo-poo those ideas again here (I’ve done enough of that already), but I will say that I’ve come full circle on this subject.
The last couple of years have seen me return to my roots: short-term trading what Mother Market is offering today.
Yes, the perpetual quest for the next big thing is a drag, but there’s a reason we do it: because it works (or at the very least, it’s worked very well for me). These concepts may be fleeting, but potential returns are juicier than anything any longer-term strategy could provide.
I forgot that last part for a little while there. The death of short-term mean-reversion soured my grapes, and I lost sight of the fact that we’ve been through this before.
Concepts work until they don’t. As long as we stay on the front end of quantitative research, we can ride those ideas until they’re consumed by the market. Then we can put our nerd hats back on and move on to the next big thing.
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