That’s scenario analysis, not statistics. I am not at all confident in that time frame going forward. It could be faster, or slower. I don’t really care that much -- I care a lot about us being right.
What do the last couple of decades tell you about the years ahead?
Prior to 2018, there was already evidence that our strategies have trended toward more clustering of good and bad years than I would have guessed at the beginning of my career. But ’18 through ’20, and now ’21 and ’22 are examples of the strategies trending more than even we would have guessed. And we’re believers in trend.
One thing I’m considering is whether we really believe this is a permanent aspect of markets. That styles like value -- quant or non-quant -- look even less normally distributed than we thought. That they have these long periods in both directions. Does this evidence mean we should be a little more aggressive than normal when we’re making money for some decent period? That’s always a little scary, because you can be whipsawed by trend following.
What could being “more aggressive” mean?
It’s really pretty geeky. It could mean some function of the recent performance, when it’s very, very good. It could be as simple as, when you’ve past two standard deviations in a year, go to 12% vol. When you’re two standard deviations down on a year, go to 8% vol. If you really thought -- with the trend following -- you are certain about it, and it was a huge effect, you could go short your own strategy in a bad year.
I’m not married to value. If I ever thought shorting value was the right strategy, I would do it. I think we’re nowhere near gonna find that. But whether we should be somewhat more aggressive when it’s been good? It’s something we’re thinking pretty hard about.
This article was provided by Bloomberg News.