Rewind 2022: 5 learning for quant investors & professionals

Synopsis

Forgotten sectors made a last-minute comeback, and we learnt that we could lose money on good businesses if we overpay! It was a time to be dynamic and risk averse.

Sonam Srivastava

Founder, Wright Research

Sonam is a globally recognized researcher in the field of machine learning in finance & quantitative investing. She has worked with HSBC Edelweiss & Qplum where she has built and handled large-scale portfolios & trading algorithms in US & India.

As 2022 comes to a close, most of the world still faces stubbornly high inflation, aggressive interest-rate hikes and geopolitical tensions. India, on the other hand, remains strong but not untouched by global events.

Some of what happened in 2022 was foreseeable, but we had a fair share of the unexpected as well – even for the quant investor!

Forgotten sectors made a last-minute comeback, and we learnt that we could lose money on good businesses if we overpay! It was a time to be dynamic and risk averse.

It was no surprise that 2022 favoured high-quality undervalued stocks, and high-growth stocks came under pressure.

There’s a meaningful difference between a good business and a good investment, and we understood the factors that can help us understand this better in 2022.

Here are the key lessons we learnt from 2022 as quant investors:

Diversification is key:

One of the critical lessons from this year is the importance of diversification in investing. Highly sophisticated quantitative strategies can be vulnerable to unexpected events or market movements. By diversifying your portfolio across various asset classes, industries, and geographic regions, you can help mitigate any particular event’s impact on your overall portfolio.

Expect the unexpected:

Another lesson from this year is that it’s essential to be prepared for the unexpected. This can include unexpected market movements, changes in economic conditions, or other unforeseen events. Being proactive in managing risk and having a plan in place can help you navigate unexpected market events and minimise the impact on your portfolio.

Keep an eye on risk:

Risk management is a crucial aspect of any investment strategy, especially for quantitative strategies. Monitoring and managing your portfolio’s market and operational risks is essential. This can help you to avoid potential losses and maintain the stability of your portfolio over the long term.

Don’t get too attached to your models:

Quantitative models can be useful tools for analysing and forecasting market trends, but it’s important to remember that they are tools. They are not perfect and can sometimes produce unexpected or inaccurate results. It’s important to periodically review and update your models to ensure they are still relevant and effective.

Stay up to date:

Finally, it’s important to stay current on market developments and changes in the economic environment. This can help you to identify new opportunities and adjust your investment strategy as needed. This can involve staying current on financial news and market data and regularly reviewing and updating your investment strategy.

Conclusion:

2022 leaves us dented but not drowned. We might see a new regime in 2023, with low inflation, rising commodities, the resurgence of the manufacturing and cyclical businesses and high-interest rates. But one theme we see continuing the next year for certain is to expect the unexpected!

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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