Posts tagged ‘quantitative models’

Fine Tuning Your Stock Fishing Skills

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If you are one of those fishing hobbyists crowded among a large group while hunting for a big fish, mathematics dictates your odds of reeling in a grand prize are significantly diminished. Expert fishermen are generally the first to arrive because they understand once the masses appear the opportunities will disappear. Like big fish, colossal stocks are rarely discovered by a large herd of investors. Financial bubbles occur in this manner, however these periods are usually short-lived and the investor pack often ends up losing more money on the way down relative to the profits earned on the way up. Successful investors are usually the ones following a disciplined systematic approach that is often contrarian in nature. In other words, not chasing performance requires patience, an elusive quality in these fast-paced, frenetic financial markets.

More prevalent in these markets are impulsive day-traders, unruly high frequency traders, and tempestuous hedge funds. Why own stocks, if you can rent them? Like a fisherman who constantly casts his/her bait in and out of the water, a short-sighted investor cannot realize outsized gains, unless the bait is given sufficient time to lure (find) the next winning idea.

Like many professions, experts often optimally mix the quantitative science and behavioral art of their craft. Whether it’s a teacher, doctor, accountant, attorney, or bus driver, the people who excel in their profession are the ones who move beyond the statistical and procedural basics of their trade. Practicing and understanding the nuts and bolts of your job is important, but developing those intangible, artistic skills only comes with experience. Unfortunately, many investing hobbyists don’t appreciate these artistic nuances and as a result go on destroying their portfolios, even though they act as if they were experts.

On the flip-side, decisions purely based on gut instincts will also lead to sub-par outcomes. The fisherman who does not account for the wind, temperature, geography, light, and seasonal differences will be at a distinct disadvantage to those who have studied these scientific factors.

In the fishing world, there is no miracle GPS device that will guide fish onto your hook, and the same is true for stocks. No software package or technical pattern will be a panacea for profits, however having some type of scientific tool to assist in the identification of investment opportunities should be exploited to its fullest. For us at Sidoxia Capital Management (, our tool is called SHGR (pronounced “SUGAR”), or Sidoxia Holy Grail Ranking. The name was created tongue-in-cheek; however its purpose is crucial. Following a quantitative system like SHGR ensures that a healthy dosage of discipline and objectivity is factored into our investment decisions, so inherent biases do not creep into our process and detract from performance. Specifically, our proprietary SHGR model incorporates multiple factors, including valuation, growth, sentiment indicators, profitability, and other qualitative measurements.

Although we use a “Holy Grail” ranking system, the fact of the matter is there are none in existence – for fishermen or investors. Experience teaches us the best opportunities are found where few are looking, and if proper quantitative tools are integrated into a multi-pronged process, then you will be uniquely positioned to catch a big fish.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs) and CMCSA, but at the time of publishing SCM had no direct position in BRKB, HNZ, HRL, UL, T, VZ, CAR, ZIP, AMR, LCC, ORCL, APKT, DELL, MSFT, RDSA, Repsol, ODP, OMX, HLF, BUD, STZ, GE,  or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

March 10, 2013 at 11:06 pm 2 comments

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