No. of Recommendations: 10
I have a position in my quant portfolio. It has been pleasant to watch. I'll keep it till the quant formula says to ditch it, which I check only every two months. Broadly speaking, this particular screen will have it replaced only when there is another high-sales-growth Nasdaq type firm with better price momentum. I expect I'll give back some of the profits, maybe most, but (statistically) not all.
An interesting little snip from a recent copy of the Economist:
"Are the pros any better? Only up to a point. Last year Mr Imas and colleagues published a paper on the buying and selling choices of 783 institutional portfolios with an average value of $573m. Their managers were good at buying: the average purchase, a year later, had beaten the broader market by 1.2 percentage points. But they would have been better off throwing darts at the wall to select which positions to exit. After a year, sales led to an average of 0.8 percentage points of forgone profit compared with a counterfactual in which the fund selected a random asset to sell instead.
"Unlike retail traders, the pros were not clinging on to losers. Yet neither were they making selling decisions analogously to how they make buying ones: by choosing the asset adding the least to their risk-adjusted return and offloading it. Instead they used a simpler heuristic, disproportionately selecting positions where relative performance had been very bad or good, and exiting those. As a result, they were throwing away two-thirds of the excess returns their skilful buying had won them."
The optimal strategy probably depends a whole lot on your intended investment horizon. But, just maybe, "yikes it's up a lot in a short period" might not be something you want to react to.
Jim
