Join the Discussion at Reddit

Visit our subreddit r/activeinvestormag and join the discussion. All content is curated and published by market strategist, trader, and investor Teresa Lo.

To learn more, read A Conversation with Teresa Lo, where she sat down with fellow investor and author Leslie N. Masonson. The interview is featured in the December 2023 issue of Technical Analysis of Stocks & Commodities magazine.

Get the Signal

The ability to identify signals is key to successfully navigating the markets. With actionable insights, clarity to make confident decisions, and a community of serious investors, we help you break free from the noise and take control of your financial future.

Rise Above the Noise

The financial world is filled with noise and uncertainty. In his landmark paper, Fischer Black postulated that noise enables trading and market liquidity but distorts prices, making them reflect both true information and misleading signals. But Black’s genius wasn’t just in identifying noise; it was in his approach to solving problems.

The key to solving investment challenges lies in the approach. Like Fischer Black, we believe in the power of first-principles thinking. With our own money on the line, we focus on a small set of problems that matter and solve them.

By quantifying insights about volatility and investor sentiment gained from a long trading career, we developed strategies and solutions grounded in behavioral finance (see Thaler and Kahneman) and in the empirical properties of asset returns (PDF), one of which was a different approach to asset allocation that adapts to the market’s ever-changing nature.

Why Your Portfolio Isn’t Working for You

Most investment firms and advisors focus on sales and marketing. As a result, they rely on software built on outdated models that can’t adapt to modern markets. They also depend on sell-side research that prioritizes the firm’s interests over yours.

Additionally, their use of flawed risk assessments, such as KYC questionnaires, serves more to protect the firm legally than to optimize your investments. Research shows these assessments often misrepresent clients’ true risk tolerance (Grable et al., 2020; Linciano & Soccorso, 2012), resulting in portfolios that are misaligned with your actual needs.

How Traditional Strategies Left Investors Stranded

Asset allocation software used by many advisors relies on static models and outdated assumptions, making portfolios inflexible during market stress. Traditional portfolio construction, based on Modern Portfolio Theory (MPT) developed by Harry Markowitz in the 1950s, assumes that stocks and bonds are negatively correlated — that balancing the two stabilizes risk.

However, in 2022, rising inflation and interest rates caused this correlation to break down. Bonds suffered unprecedented losses alongside stocks, failing to mitigate portfolio declines. As a result, investors following traditional strategies were unable to adapt to macroeconomic changes, leading to unexpected losses, eroded trust in advisors, and missed opportunities available through more adaptive approaches.

While Markets Gyrated, Our Adaptive Strategy Protected Investors

We never relied on MPT. Our strategy originated from lessons learned as traders. From the outset, we focused on risk management using allocation models grounded in our proprietary volatility research. This approach aligns with Nobel laureate Robert Merton, who learned the hard way about volatility from his LTCM misadventure and now believes that portfolios should aim for a consistent level of volatility, rather than adhering to a fixed asset allocation.

Recognizing the macroeconomic shifts early, we began to pivot away from bonds in 2019 based on our own insights. By the end of 2021, our Endgame models contained no bonds, shielding us from the unprecedented losses that plagued traditional portfolios. Our macroeconomic analysis, commitment to adaptive strategies and real-time risk assessment protected our investments and unlocked opportunities — delivering results when others faltered.

Invest Smarter. Think Independently.

Teresa has devoted her entire career developing buy-side macroeconomic, technical, and quantitative strategies for her own investments — and she delivered results when it really mattered. This isn’t about theories or sales pitches. It’s about what actually works in the market.

Join us and access the insights, strategies, and community you need to achieve your goals.

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