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Showing posts with label investor. Show all posts
Showing posts with label investor. Show all posts

Sunday 5 July 2020

Using a Regime Filter

regime filter or a market regime filter is a tool to help us conceptually understand the kind of market we are in. As a systematic investor, we can increase our odds of success by adding a regime filter to our arsenal. It tells us, based on how we have defined it if we are in a bull market or a bear market. We would think differently about market risk in different market scenarios.

A simple example of a regime filter is using the 200 day moving average. If the index of your choice is above the 200 day moving average, then you define it as a bull market and below it as a bear market. You can design your portfolio strategy to hold full allocations in stocks if you are in a bull market and 50% allocated in a bear market.
So, with that basic logic you can start constructing a slightly more realistic and slightly more nuanced regime filter.

First, define the market conditions you want to address – superbull, bull, bear, superbear. The reason for doing that is you want to be cautious in the market extremes of superbear and superbull conditions and aggressive in the bear and bull conditions (for long-short strategies). Then use a combination of indicators like RSI and 50 & 200 day moving average to define the selected conditions. For example, above 200 dma and 70 RSI you define as superbull and above 200 dma and above 50 RSI as bull phase.

Another trick that can be used is to use multiple indices. For example, you can use the average of Nifty, Nifty Next 50 and Nifty 500 in equal proportions to define your market. For a long-only investor, it may increase the odds of success to be buyer only when the regime filter is indicating a bull market.

Note: For exploring quantitative systems, check out www.quantamental.in, a quant-based newsletter. 

Friday 20 April 2018

Tribute to a legend - Marty Whitman

Martin Whitman, a legendary value investor, passed away on 16th April. He was the founder of  Third Avenue Management. Marty, as he was better known as, was a passionate value investor and a teacher. He was associated and took classes at Syracuse University’s Whitman School of Management, named after him. He was a distinguished Management Fellow at the Yale School of Management and served as an adjunct professor at Columbia University Business School.

I first became aware of him about 15 years back, from a talk given by Seth Klarman, where Seth suggested reading Marty's book "The Aggressive Conservative Investor". I read the book and it was packed with a lot of good and simple insights. Two ideas that stuck with me were, i) buying companies with low margins because of low competitive intensity and ii) mean reversion of sectors.

Here are some links to help you know the man from his works:

Dear Fellow Shareholders - (online book) )https://mjwhitman.pressbooks.com/