- Is a fundamental stock picker.
- Filter out a few manageable collection of stocks and start analyzing each individually - “start at the A’s” and work their way systematically through the market until they find prey worthy
- Perform in-depth analysis both of its financial situation but also of more qualitative aspects such as analysis of its sector peer group, economic resilience and moat.
- The majority of investors see themselves as part of this group.
- E.g. Anthony Bolton, Bill Miller or Warren Buffett
Farmer
- To ‘harvest’ systematic mispricing from the rough of the stock market through quantitative techniques.
- Magic Formula - designed to pick up good cheap companies
- Joseph Piotroski's Scoring techniques which aim to highlight companies that have a high probability of turnaround.
To be a Hunter or a Farmer?
- Media tend to glamorize the approach of the stock picking ‘hunter’ - the Warren Buffett’s of the world - which contributes to so many individual investors over- rating their abilities and becoming easy prey of the farmers.
- Many investors really do not have the time nor the resources to perform the kind of analysis that can turn stock picking into a highly profitable activity in this changing market environment.
- A better approach is to start by applying some proven quantitative criteria to narrow down the universe of stocks to a starting list to pick their stocks from and buying them as a basket.
- Individuals who buy individual stocks off these lists will time and again favour names that are familiar to them and shun the strangers. > =20% profit of any portfolio strategy often can be attributable to a single stock, which is regularly the least likely of the basket to be chosen by a stock picker!
- Giving up on individual stock picking may seem an extreme proposition, and one opposed to the activities and instincts of the vast majority of investors, there’s a growing body of evidence to suggest that, for many, it could be the smartest and most rewarding choice they can make.
References:-
No comments:
Post a Comment