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Quote of the Week: Outperformance – Algorithms versus Humans

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November 14, 2013

“It seems that individual investors, once given the freedom to vary from the ‘model’ promptly went about shooting themselves in the proverbial financial foot. Many didn’t buy the biggest winning stocks – stocks that were often very cheap but had major business problems or industry challenges.”

 

Who said it: Michael Nairne, President of Tacita Capital, family office and investment advisory firm

 

In Context: In a discussion about portfolio management and the suitability of using computer-aided models, Nairne suggests that it should not be a surprise to hear that individuals make mistakes when managing a portfolio of investments. He believes that a good investment model will outperform the typical investor. A model avoids the emotional and fear-driven buy/sell decisions that a typical investor would make. Sophisticated investors such as pension plans have known for decades that defining their own longterm “asset mix model” is vital to success, he writes. A model sets out allocations to the major asset classes to stay on course, in good markets and bad. He said that many investors, including wealthy ones, gloss over the critical step of thoughtfully defining the right long-term asset mix for their risk profile and financial situation. “It is so easy to resist the needed discipline of an asset mix model when stock prices are skyrocketing, top equity managers abound and suave market experts are offering free tips in every media outlet,” writes Nairne. (Image source: Financial Post)

 

Where we found it: Canada’s Financial Post

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