A book outside currencies, my thoughts on passive investing strategies

Up until now I have mainly dedicated this blog to the development and discussion of algorithmic currency trading strategies. However I have always been interested in passive investing strategies in the stock/bond market but have never gone into that subject within this blog. Although I won’t do that – get into the depths of passive investing strategies here – I wanted to share with you some thoughts about a new book I have published about passive investing strategies. The book is called “Passive investing on steroids” and you can find it on this link. Within this post I will talk a little bit about why I wrote this book and why I think it is a worthy read for people who are interested in maximizing their returns and reducing their risk exposure relative to normal index based stock investments.

An important characteristic of currency trading strategies is that the currency markets follow a zero or negative sum game – depending on whether you consider broker commissions or not – reason why any profit you get from these markets depends fundamentally on the amount of alpha you can generate. This basically means that whenever you trade something like this there is no implicit guarantee of returns and anything you got up until now could stop working tomorrow. The common saying that “Past performance does not guarantee future results” is very well suited for this market as there is always a probability that a strategy that has worked – even for decades – will simply not work going forward anymore if some market characteristic changes. This is why any investment in currencies, especially using significant leverage, is generally considered high risk – regardless of the track record of the strategy being traded – and why I have always considered alternative investment vehicles where the probability of future and past returns to match is expected to be bigger. These are inherently safer for long term investing and larger amounts of capital.

The stock and bond markets have the advantage of being positive sum games – meaning that they have a tendency to create value and go up – so an investor that just buys and holds these investments is extremely likely to get a positive return in the long term. This is so true that making money in these markets within a 15 year period is pretty much guaranteed. Because of this it becomes interesting to develop strategies that use buy-and-hold mechanics to try to maximize risk adjusted returns as much as possible while making sure that any sources of statistical bias are minimized. When investing in bonds/stocks I prefer to think about strategies that avoid active management, since I want to minimize the probability of fooling myself into making wrong assumptions about returns because of curve-fitting, data-mining or other potential sources of bias.

While looking for these types of opportunities I soon realized that there are ways in which you can implement buy-and-hold strategies using bond and stock investments using leverage that are able to increase returns and reduce risk relative to traditional stock index investments (like blindly buying the S&P 500). This using a minimal set of assumptions that rely on very strong market relationships while keeping the investments as passive as possible. As with any investment portfolio that involves more than one instrument periodic re-balancing might be needed to keep allocation consistent, but beyond this the amount of effort required by investors is minimal. Since I couldn’t find any books covering the subject I decided to write a short book describing these strategies and detailing their historical simulations along with R code to reproduce all the quantitative results.

Image result for investing book cartoon

Although the strategies covered within the book are already used by many types of investors (including some hedge funds) and there are certainly several articles online that approach the subject from similar angles, I think this book provides a very concise summary of these strategies that could be very valuable for any investors who are looking to increase their long term returns without having to become legendary value investors or spend a ton of time learning how to trade. Contrary to becoming an algorithmic trader – which requires years of hard work and effort – this book is about the entire opposite: how to maximize returns while using the smallest possible set of assumptions and the least possible amount of time. If this topic interests you I would encourage you to buy the book and leave a review with your honest opinion. Also feel free to leave a comment on this post with any questions you might have about it.

You might also be wondering if I’m not trading currencies anymore – since this is the first post since December 2017! – but don’t worry, I still do, although many things have changed in my life during 2018, which have kept me very busy in the trading world and away from posting here. This will be the subject of another post!

 

 

 

Print Friendly, PDF & Email
You can leave a response, or trackback from your own site.

Leave a Reply