Discretion is back in

Aman1 · #1 15th September 2008, 09:23 PM

But, let's not call it discretion!

I was reading a daily hedge fund news letter, and here is a direct quote:

"CHARLOTTESVILLE, VA (HedgeWorld.com)-Since 2005 and especially since last year, quantitative fund performance has not been as good as it used to be. Now that many have come to realize that mathematical models are not flawless ("Duh" - my own injection), a new trend in asset management is emerging: integrating the human touch of a fundamental approach into the blind computer-driven process..."

So...let's see......we come up with computer driven models to take the emotions out of trading (the human element), in the hopes that we can arb a statistically positive expectation. Firms hire dozens of PHds to dissect the same time series data and any edge is quickly arbed out. Not to mention that the future does not unfold in the same way as the past which is what the models are based on.

Now, let's bring back the human touch we tried to get rid of in the first place - this human touch now allows an individual to "override" the computer driven signals. (Of course, this individual will always know in advance which signals will work and which will not). So...what exactly is the point?

There is definately an industry bias against terms like "traders", "technical analysis", "discretion"....but for good reason as well. Too many technicians have been negligent on focussing on risk concepts and instead overemphasize "calling" the market. Who wants to allocate large sums of money to a group who can't quantify risk? How is one supposed to know what type of leverage to use?

Definately a Catch-22. But, it still made me laugh to see that the "trend" is now using human judgement integrated with computer driven models....Let's just call a trader a trader....

FROM--LINDA BRADFORD RASCHKE'S BLOG