The results from computer driven trend following strategies are both astonishing and undeniable.
Which is why big institutions and prominent hedge funds have been jumping ship on buy and hold investing and dumping billions of dollars into Artificially Intelligent data-driven trading systems that can outperform passive investing.
Today, it’s the most sought after approach on Wall Street.
Here’s a recent quote from Wired.com:
Data-centric hedge funds like Two Sigma and Renaissance Technologies have said they rely on AI. And according to reports, two others—Bridgewater Associates and Point72 Asset Management, run by big Wall Street names Ray Dalio and Steven A. Cohen—are moving in the same direction.
The Financial Times had this to say:
Artificial intelligence and automation are also expected to revolutionize the investment industry…Any shift towards robot stock pickers, which lack the human emotions that can drive portfolio managers to make rash investment decisions, would be a huge change for an industry that sells itself as a “people business.”
Here’s Bloomberg...
Computer-driven shops with a few billion in assets are so trouncing the titans of Wall Street that everyone from Paul Tudor Jones to Credit Suisse Group AG are raiding the talent pool.
And here’s The Wall Street Journal:
Automated Hedge Funds Make Millions in January’s Market Selloff
You can’t argue with the numbers.
It’s impossible as a passive investor to make millions during a market selloff - but you can easily lose millions.
Over the last 20 years, since the turn of the century, returns from passive buy and hold investing have been pathetic - averaging a meager 3.88% per year.
And given today’s high stock valuations, experts like Warren Buffett and Jeremy Grantham are sitting on record amounts of cash.
They believe the next 10 years could be even worse for buy and hold investors… possibly even producing negative returns.
Why risk your hard earned savings buying and holding the market, which has repeatedly disappointed and devastated investors over the last 20 years?
Trend following has been proven to be a far superior strategy than passive buy and hold investing.
And even though it’s just now getting the attention it deserves, it’s not new.
There are a handful of traders who have been using rule-based computerized trend following strategies for nearly five decades.
And their compound annual returns are so preposterous, they’re almost not believable. But I assure you, they are real.
Using their own variation of a rules-based trend following system:
Ed Seykota turned $5,000 into over $15 million in 15 years (300,000%),
Michael Marcus turned $30,000 into over $80 million (266,000%),
Richard Dennis turned $2,000 into over $200 million in 12 years (100,000,000%),
And John Henry became a billionaire and now owns a stake in the Boston Red Sox.
Even though these underground traders have earned staggering wealth using a trend following strategy, it wasn’t until 1994 that trend following really started to gain credibility.
It was then that Cliff Asness, now a billionaire trader, stumbled onto trend following while completing his PhD thesis at the University of Chicago.
He crunched 136 years worth of data on 67 markets across four major asset classes—including equities, commodities, bonds, and currencies—and performed an untold amount of backtests.
His findings definitively prove that trend following substantially outperformed buying and holding the S&P 500, Dow Jones, Nasdaq, Russelll 2000, or any other index.
Based on his results, had you invested $1,000 into his simulated trend following strategy in 1950, today it would be worth $66.7 million. Compared to only $1.2 million buying and holding the S&P 500.
Today, Cliff runs the $226 billion AQR Capital Management - one of the fastest growing and now the second largest hedge funds in the world.
He believes trend following deserves to be the “next big thing” in money management.
Which is why I believe so many fund managers are now abandoning buy and hold and flocking to Artificially Intelligent trend following systems.