Models

By all conventional and even some unconventional measures, the US stock market is trading way beyond historical valuation averages and is closer to all time highs. Passive stock index investors have enjoyed a period of extraordinary gains in one of the longest running bull markets. No other major asset class has come close in the last 7 years. Well diversified portfolios have had lackluster returns while the stock market keeps making new highs.

An important and often overlooked topic was raised by Corey Hoffstein at NewFound Research. Here are his first couple of tweets on that topic:

Indeed, this is about rebalance timing and how little attention it gets. Within the construct of a systematic strategy, this is a part of the Execution Model.

The Black Box Revealed

Courtesy: Inside the Black Box - The Simple Truth about Quantitative Trading by Rishi Narang

Everyone using a smartphone or a mobile device has used an onscreen smart keyboard that tries to predict the next set of words that the user might want to type. Typically, upto 3 words are predicted, which are displayed in a row at the top of the keyboard. Given that typing on a glass pane without tactile feedback, could be very frustrating at times, the smart keyboard goes a long way in alleviating these issues.

It is important to understand the building blocks of systematic investing strategies before learning how to build them. Here is a schematic from the book, Inside the Black Box - The Simple Truth about Quantitative Trading by Rishi Narang, that provides a good way to visualize these building blocks and how they fit together in a system.

The Black Box Revealed

The author had aptly titled it - The Black Box Revealed, since that is how most people perceive it to be from the outside.