I am one of those within this industry that starts the day by carefully reading 2 or 3 major newspapers. I think most senior managers in institutional investment management do as well. Be they quantitative, fundamental, behavioral scholars or asset managers with another background, we all want to be up on the latest news. But, if we ask ourselves ‘‘what did it bring us?’’ we will always say that some comprehensive, reflective article or analysis read at a later date was better. We are afraid to miss out on something, but it has been proven that shorter-term price movements are often very noisy. We do not make a quick buck by skimming through news articles. I do not believe that it is a bad habit to ensure that we know what the latest news is. When looking at financial news on TV, or listening to the radio, or when reading through the ‘’analyses’’ of financial journalists, it seems that in market folklore there is a 1-on-1 linkage between recent news and recent security price movements, academic proof to the contrary notwithstanding. And it is always good to know what market participants (want you to) think.
By the same token, we should have a structured investment approach in place so that we are detached from paranoia and the nervous, herding behavior of the crowd. Not being too sensitive to all of this, but always understanding that it exists, is what institutional, top-level asset management and investment advice is all about. There are various roads that lead to Rome, but only those with a well thought out plan will reach that beautiful ancient city via the Via Corso or Trevi Fountain. The ones without plan will end up in the Coliseum as food for the lions (i.e. the market movement in general) or victims of aggressive gladiators (hedge fund managers).
Compendeon is happy that we were independent enough in our thinking to understand that it is important to allow for ‘’other ways of thinking’’ and ‘’more fundamental and behavioral analyses’’. The fact that we have a Noble Prize laureate as senior advisor and associate for many years notwithstanding, the ‘’quant’’ flavor in our firm is actually limited to ‘’quantitative’’ being a way of incorporating algorithms about human behavior in markets into a labor-extensive approach.
Within our firm, Patrick Costello, an American with a non-quantitative, very critical journalistic background stands as a symbol for ‘’the market’’ or ‘’the average market participant’’. He will help us avoid drowning in technicalities, while at the same time dig through the news finding things that his colleagues in the firm would normally ignore or avoid. I am proud to introduce you to THE OTHER NEWS, a page on which we hope to present news curiosities and/or oddities that might, at first glance, seem less relevant than that found in your daily newspaper, the WSJ or FT. However, when reading carefully through the often-amusing teasers, I am sure that they could help when having to embark on a brainstorming journey to solve specific problems with your investment process, philosophy, or performance of a specific product. For those who already embrace the concept of Behavioral Economics, it illustrates the relevance of this branch of our field of study; certainly not as ‘the only way to go’’ but definitely as an important ingredient within well-performing strategies or risk models.
I hope you enjoy THE OTHER NEWS just as much as we love reading it. I am sure that Patrick will surprise you at least as much as he does us.
Erik van Dijk
CEO/CIO
Compendeon Investment Advisors
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