Quantamental investing is the new active. When combined with “machine learning,” what is old is new again. The marketing machine does much of the rest. That’s how we roll.
Quantamental managers are said to combine bottoms-up analysis of companies with quantitative approaches to the alpha prediction problem. Fueled by new data sets, the idea dates back to the early 1970’s, pioneered by luminaries such as Jack Treynor and Fischer Black. The same data availability breathes new life into machine learning cum data-mining techniques developed in the 1940’s.
As with any industry fad, opinions vary. New data do not imply new insight. Statistical tools designed for servomechanisms do not blindly lend themselves to human behavior. As Steven Einhorn of Omega Advisors points out, “Big data and quantitative analysis can help identify [predictive power], but so can, and so will, fundamental security analysis.” The emphasis is his, and he makes a case that there will always be a place for the traditional active manager, while complementing fundamental insights with quantitative approaches will happen over time.
Data extraction does not mean idea inception. Value the question first, before invoking the tools.
- Ian Domowitz
Interesting read for those trying to figure out where old school fundamental investment skills fit into the new data-drenched world of automation and algorithmic security selection. Hit the link above for the whole thing.