[Investing] When Models Break Down

Nice article from Zerohedge talking about how Renaissance and AQR have taken a hit because of unprecedented times.

Fed pumping money and Robinhooders going berserk will break any model.

This is the danger of quant investing, the model will work most of the times but it will be ugly when it doesn’t.

Plus, now we know why we still have humans supervising the models. The models are good as their inputs. Not good at predicting the future.

That is why AI will not dominate trading/ investing yet. They are far far away from knowing the future. They may able to predict short term movements. But big breaks like the Fed pumping money and surprise attack from Robinhooders are way out of the model’s effectiveness.

Yup, models will be models. Working very well most of the time but breaking down really badly when it doesn’t still.

Renaissance and AQR have great researchers/analysts so they will tinker the model and they will be absolutely fine. But they will be hurting until they fix and improve the model.

At the mean time, I will be swing trading and hoarding cash. I really can’t really put more money to buy and hold when the markets are on a new high and volatility is out of control.

My suggestion? Manage your risk and have a lot of cash.

A correction will come-

Praying for America and the world- God bless America-

Thank You Jesus for another blessed day. Let us always be humble and prudent. Let us not waste our treasures and talents but use them for Your Kingdom Amen-

Rejoice at all times. Pray without ceasing. Give thanks in every circumstance, for this is God’s will for you in Christ Jesus.

1 Thessalonians 5: 16-18

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