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Solving the "Human" Problem

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Tue, Feb 25, 2020 05:45 PM

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Stock pickers are a dying breed. Taking their place? Quant systems. Here's why quant trading has the

Stock pickers are a dying breed. Taking their place? Quant systems. Here's why quant trading has the edge over humans in building wealth.  [Browser View]( [Liberty Through Wealth]( Humans vs. Quant Traders: Who Wins in the World of Trading? Nicholas Vardy, Quantitative Strategist, The Oxford Club  Only 10% of stock trades are made by investors. The rest are made by quant traders, who use algorithms to quickly crunch data, recognize patterns and place trades.  Today, Nicholas Vardy explains why quant systems have an edge over humans in building wealth.  [Sliced Up Dollar Bills]([New Law Could "Reduce the Value of All Retirement Accounts"!]( A Wall Street Journal writer said this bill "would actually reduce the value of all retirement savings plans: IRAs, 401(k)s, Roth IRAs, the works." [Click here to learn more.](  Editor's Note: Exciting news! Our brilliant ETF Strategist Nicholas Vardy is transitioning into a new role as The Oxford Club's Quantitative Strategist. What exactly does that mean? Well, Nicholas will be taking a deeper dive into quant investing strategies and trends, and sharing that knowledge with our Liberty Through Wealth readers and his subscribers. So, for starters, take a look at today's article for more information about quant trading and its explosive growth in recent years. - Christina Grieves  [Nicholas Vardy]  The statistics are clear as day. Stock pickers are a dying breed. J.P. Morgan estimates that a mere 10% of stock buying and selling is by investors trading on fundamentals. The rest occur through a combination of passive investors and algorithms run by quant traders. Solving the "Human" Problem So what explains this unprecedented growth in quant trading? First, computer processing power has exploded. Computers can parse, analyze and integrate data like no human can. They recognize patterns invisible to the human eye. Second, we humans are the weakest link in investing. Active trading is particularly treacherous. It homes in on human weaknesses like a heat-seeking missile. Dozens of cognitive biases steer us toward making bad investment decisions. For some traders, placing bets in the market is like gambling: fun and addictive. It's a real-life, nonstop video game. For others, trading offers the opportunity to pit their wits against the market. The challenge is eternal. You can't be right just once. You have to be right again and again and again. Quant trading solves the challenges of human psychology in one fell swoop. It eliminates human decision-making altogether.  [Telecom Insider: "Get Into 5G Stocks by June 25"]( [David Fessler at Computer](One seismic event could trigger the biggest investment boom in recent history. But if you don't have your money in a short list of 5G stocks, you'll miss out completely. You must take [this one step to get the details before Monday, June 25](.  The Quant System's Edge A quant system's edge is its ability to crunch data, recognize patterns and place a trade based on objective criteria. This process can lead to some remarkable results. In the fourth quarter of 2019, quant investing pioneer [Renaissance Technologies]( took a massive position in Tesla right before its most recent pop. Renaissance made more than $1.5 billion on that trade. No analyst trained in traditional fundamental investing would have dared to place that bet. Yet Renaissance's computers picked up a pattern no human ever could. Quant systems offer another equally important edge: They never make mistakes. Program a system with a set of rules, and it will follow them without question. Unlike humans, computers are immune to [Mr. Market's mood swings](... are indifferent to a clever investment pitch... and never fall out of [emotional kilter]( due to a divorce. Today's Top Quant Strategy As The Oxford Club's Quantitative Strategist (previously ETF Strategist), I track thousands of ETFs. You may be surprised to learn that [smart beta ETFs]( are a simpler form of quantitative investing. Each smart beta ETF tracks a specific quant-based investment strategy... and never deviates from it. So what is the top quant ETF strategy in today's market? Momentum. The iShares Edge MSCI USA Momentum Factor ETF (CBOE: MTUM), a holding in the Oxford Wealth Accelerator Strategic Portfolio, is already up 5% in 2020. And it is up 34.5% since we launched the Strategic Portfolio in December 2018. That's a terrific performance for a "set it and forget it" market-beating strategy. Here's the challenge. Yes, momentum is in favor today. But as sure as day follows night, soon, a different quant strategy - perhaps deep value - will lead the pack. Enter Short-Term Quant Strategies Here's where short-term quant trading systems come into play. Active quant traders can generate impressive short-term returns by betting big on stocks screened for specific quant-based characteristics. Exploiting consistent market anomalies is typical of the strategies used by top quant hedge funds like Renaissance. Over the past six months, I've been working with some of the leading quant software. And I've consulted some of the leading experts in the field - all of this with one aim: to develop some highly profitable short-term quant trading systems. These quant systems have generated some impressive short-term investment returns. I'll be sharing some examples over the coming weeks. And I expect you'll come to the same conclusion I did: In the world of short-term trading, quant traders trump humans almost every time. Good investing, Nicholas --------------------------------------------------------------- Interested in hearing more from Nicholas? Follow [@NickVardy]( on Twitter. [Leave a Comment](  [Facebook]( [Twitter]( [share](mailto:?subject=A%20great%20piece%20from%20Liberty%20Through%20Wealth...&body=From%20Liberty%20Through%20Wealth:%0D%0A%0D%0A Stock%20pickers%20are%20a%20dying%20breed.%20Taking%20their%20place?%20Quant%20systems.%20Here's%20why%20quant%20trading%20has%20the%20edge%20over%20humans%20in%20building%20wealth. %0A%0D ?src=shared)  About Nicholas  Nicholas Vardy is the Quantitative Strategist of The Oxford Club, head of Oxford Wealth Accelerator, and contributor to Liberty Through Wealth and [The Oxford Communiqué](. He is a widely recognized expert on exchange-traded funds whose work has been cited in a variety of publications, including The Wall Street Journal and Financial Times. He holds a B.A. and M.A. from Stanford University and a J.D. from Harvard Law School. He is also an associate of the Adam Smith Institute and the Chatham House think tank in London.  [Attention: Have you heard about this audacious new movement?!]( Starting with an announcement late in the day on March 18, 2020, American investors may be in for a nasty surprise. That's when one of the most popular assets in America could suddenly be made illegal. Learn the five (easy) steps to prepare yourself now. [Click here to continue reading.]( SPONSORED  More From Liberty Through Wealth  [Path]( [The Two Secrets of Bill O'Reilly's Stock Market Success]( By Alexander Green Bill O'Reilly is not an investment expert, so how has he become such a successful investor? It turns out there are two steps that pave the path to true wealth. [Self Love]( [The Connection Between Self-Compassion... and Investment Success]( By Joel Wade As investors, we're sure to experience losses at some point. But we can't dwell on them and shame ourselves or it's sure to harm our future wealth building. [Bernie Sanders]( [A Democratic Sweep in November Could Be the End of the Bull Market]( By Mark Skousen Democratic presidential candidates have been attacking Wall Street left and right. If a Democrat wins, it will mean trouble for wealth builders. You are receiving this email because you subscribed to Liberty Through Wealth. To unsubscribe from Liberty Through Wealth, [click here](. Questions? Check out our [FAQs](. Trying to reach us? [Contact us here.]( Please do not reply to this email as it goes to an unmonitored inbox. To cancel by mail or for any other subscription issues, write us at: Liberty Through Wealth | Attn: Member Services | P.O. Box 932, Baltimore, MD 21203 North America: [1.877.806.4508]( | International: [+1.443.353.4610]( | Fax: [1.410.329.1923]( Website: [www.libertythroughwealth.com]( Keep the emails you value from falling into your spam folder. [Whitelist Liberty Through Wealth](. © 2020 The Oxford Club LLC All Rights Reserved [Oxford Club] The Oxford Club is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that although our track record is highly rated by an independent analysis and has been legally reviewed, investment markets have inherent risks and there can be no guarantee of future profits. The stated returns may also include option trades. We expressly forbid our writers from having a financial interest in their own securities recommendations to readers. All of our employees and agents must wait 24 hours after online publication or 72 hours after the mailing of printed-only publications prior to following an initial recommendation. Any investments recommended by The Oxford Club should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Protected by copyright laws of the United States and international treaties. The information found on this website may only be used pursuant to the membership or subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of The Oxford Club, 105 W. Monument Street, Baltimore MD 21201.

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