I vividly recall sitting at my laptop last fall developing a presentation for the National Association of Active Investment Managers (naaim.org), when I received a fateful email — Trading Markets had become an event sponsor, and I was now ‘opening act’ for none other than Larry Connors.
As readers here know, Larry is the iconic co-founder of the Trading Markets franchise, recognized throughout the industry for his original research in quantitative approaches to markets. Moreover, I knew Larry as one of his former Chairman’s Club students. You might say it was a “how did I get here?” moment.
And this is the purpose of my first article for Trading Markets: to tell you a little about myself before we explore together how investment advisors may gain a strong and durable edge using “The Machine®”. If you haven’t discovered it yet, “The Machine” is a web-delivered service that allows professionals to build and actively manage customized, quantified portfolios of equities and ETFs for their clients. Think of it as an easy means for traditional asset allocators to access sophisticated alpha methodologies traditionally left to hedge funds.
To begin my story, about ten years ago I was hired out of a joint law and business program by a Chicago venture capital and hedge fund. This was where I was first introduced to statistically-based trading, including equity and bond timing, options spread, relative strength and stock pair approaches. You might have thought I would have gained that exposure through my MBA or CFA programs, and you’d have been wrong!
Perhaps it was the modeling skills I had developed during my early consulting days at Peat Marwick, but it turned out that I was a marginally better programmer than attorney, and I soon became senior analyst. In any event, I was definitely bitten by the bug, and I have been more or less a full-time quantitative trader ever since.
For my personal trading, I was intrigued early on by the mechanical systems taught by Trading Markets. In time, these were consolidated within the exclusive Chairman’s Club program, which I joined. While it was terrific to add so many new approaches to my trading arsenal, it became evident that: a) a small multitude of non-correlated systems was important to obtain the most robust results; and, b) at some point the signals from all of these systems would amount to more than any one trader could reasonably track. At the risk of getting ahead of ourselves, this is where “The Machine” comes in, but more on that in future posts.
About six years ago, I started writing on-line as a means of recording ideas and keeping in daily communication with my investors. That endeavor took on a life of its own, and I have since built a sizable following under the pseudonym “Market Rewind.” In fact, it was one of my newsletter subscribers who first approached me last summer to present to NAAIM.
Coming full-circle, Larry and I joked as we traded places at the conference podium how, “if you survive long enough in this business, you are eventually bound to be asked to guest speak.” After the seminar, I was impressed to learn how mature “The Machine” has become since its early iterations. After relating how I am in the process of applying to become a Registered Investment Advisor (RIA) myself, I was honored to be asked by the Trading Markets team to write for them — and here we are.
In future articles, I hope you will join me on my journey to learn how “The Machine” may be used in the context of an emerging RIA, demonstrating how this sophisticated, but easy to deploy tool may be leveraged to help successfully grow a new or existing practice. Along the way, I will also share my insights as a former hedge fund trader and systems developer, as well as anecdotes about becoming a new RIA.
- Jeff Pietsch CFA