Author: Dan Beckerman, Beckerman Institutional
Covestor model: Flexible Value
Flash trading is the controversial computerized trading method that is often cited as a reason that retail investors are disadvantaged, victim to fast-trading hedge funds that game the system. I would argue that these instruments can actually benefit long-term oriented investors.
Many flash trading quantitative trading programs step in to place trades with low limit orders. In other words, they are automatically buying securities when prices drop below a certain point. Without these technical buyers, exchange listed securities would have less liquidity, as falling prices can fall father without buyers stepping in in a timely manner.
Computerized trading and market volatility are typically presented as related forces and as a major deterrent to investors. But consider that if markets calmly moved in a straight line up, there would be few opportunities to buy assets at substantial discounts. In my experience, large stock market and economic shifts tend to create opportunities for investors. With a long term investment horizon, some volatility can be a benefit.
Here are three principles we’re following in the current market environment:
Stay relaxed. Bond king Bill Gross does yoga and Sir John Templeton took long walks. People tend to make their worst investment decisions when they are filled with emotion. One needs to figure out a way to put one’s mind in a relaxed state before making major financial decisions.
Take advantage of the volatility by buying great investments at discounts to our assessed fair value. The Beckerman Flexible Value model is currently concentrated in what we believe to be heavily discounted stocks.
Do our own research. The consensus is often wrong, which is why contrarian investors can be successful. The last place that we want to find our investment ideas is in the newspaper.