Why Is Systematic Investing Important? (2)

AAA Quants
6 min readNov 8, 2021

by Tom Starke and Qian Zhu

What does a good portfolio look like?

“A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.” Harry Markowitz.

Welcome to part 2 of the Systematic Investing series. In Part 1, we discussed the underlying principles of systematic investing; in this article we will extend the discussion on behavioural biases, look at the importance of AI (Artificial Intelligence) and outline the systematic investment process and explain why these elements are needed for robust investing. The Systematic Investing series was originally presented to a group of high net-worth investors. A video presentation can be found here:

Can you tell the random one?

Some might argue that they are really much better investors than the average and understand the market through charts and fundamental data. Here’s my question:

There are two charts here: one of them is a real price chart and the other one is randomly generated. Take a moment to think about which one of these two could be the random one.

It turns out the second chart is produced entirely with a random number generator, and each new return that we see is completely unpredictable and there is no underlying reason why it would go one way or the other. Interestingly, as we look at this chart our human brain can still see quite a lot of structure, trend channels, head and shoulders patterns, double tops and all those technical features that are often used to time and predict the market. However, it can be said for a fact that none of the above has any validity because of the complete…

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