Quant Trading - Example - Google

Dated : Feb - 19 - 2022

In Joel Greenblatt 's - "Little book that beats the market" there is a line which reads " You have no business investing in individual stocks on your own". To put in context , he was talking about knowing the financial health of every stock you buy and decide to hold.

To that I say , why don't we quant trade stocks of those great companies. Mr. Market gives us plenty of those opportunities along the way.

Lets take 3 simple charts below for GOOGLE. Figure 1 , basic price chart for 2015 to 2016. Remember, 2015 was a flat year for Equity's after a tremendous bull run in prior 3 years. See my prior blog with monthly historic returns.

Figure 2, is the Wealth Index, assuming you invested $ 1 on 12/31/2014 and held the stock until 12/31/2016/ Roughly 40% return over 2 year.

Figure 3 , is the drawdown of your wealth from its prior maximum level. Meaning, its the drop in the value of the buy and hold portfolio along the way due to the stock's individual and general market and/or economic volatility.

The key observations for a Quant driven "Trader" are - 1 ) can we buy those dips and observe the speed of mean reversion 2 ) Can we use a strategy of avg. cost buying 3) Can we sell puts , and if so at what Relative Strike Levels and 4) Where do we put our stop loss once your wealth index is well over 1

Contact GTI to discuss more of such strategy's , charts and back-testing analysis