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We believe that deep-seated behavioral biases are not only prevalent but predictable, especially as they pertain to financial markets. Markets would be highly efficient if investors were rational when it comes to maximizing their wealth and well-being.

However, investors often behave irrationally which leads to anomalies or deviations from what conventional theory would suggest. Certain anomalies are easy to identify and explain but hard for the typical investor to predict with regularity. Investors are tasked with deciphering an endless stream of financial data.

Unfortunately, humans are not adept at quickly discerning the optimal action given a complex set of facts and, consequently, in these situations they fall back on more innate instincts like fear and greed. Statistical analysis coupled with disciplined rules provide a framework to exploit irrational human behavior.

Data mining (the most popular methodology used by amateur enthusiasts) is the poorest, albeit easiest, way to generate sustained investment out-performance.

A significant risk that is rarely evaluated is investor risk. In short, this is the likely inability of an investor to adhere to an investment discipline over time.

The most successful investors understand why a strategy will work, when it will work best, and when it will fail. All investment strategies go in and out of favor and will endure periods of under and/or negative performance.

A bull market makes any monkey throwing darts at the Wall Street Journal look like a genius! A robust strategy should work in multiple environments including down markets.

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