Models can prove helpful in overriding an investor’s natural (and frequently costly) impulses. But we’ve come to believe that our long experience in model building and implementation has succeeded not only in overriding these impulses but in actually modifying them.
We are nothing if not contrarians, but have also highlighted the hazards of “knee-jerk” contrarianism—in which investors are instinctively drawn to the asset, sector, or stock that is down the most in price in the recent past.
With the S&P 500 at a double digit gain YTD, one would expect those being rewarded are aggressively positioned. We present two hypothetical portfolios and find the hyper-conservative one has nearly doubled the S&P 500 gain.