A Model that Switches to the Outperforming Market Style
The greatest risk is having the wrong style bias
The greatest risk that an investor has is not picking the wrong stock, but identifying the wrong investment ‘style’ of the market. If a manager has a “Growth”-bias and “Value” is continually outperforming, then the manager will likely underperform.
This issue is only magnified by recent macro-economic issues. In August, the sharp correction in the markets ment that the “Value” style of investing strongly outperformed. This is conformed by our Value Model which was up 3.8% last month.
These “style-biases” of markets is usually very streaky. For example, in Asia over the last year, “Growth” regularly was the outperforming style. Similarly, we are of the view that “Value” will outperforming for the next few months.
Wouldn’t it be nice to have a model that adjusted styles regularly, depending on what style was working in the market?