INVEST WITHOUT EMOTIONS

It‘s an oft repeated maxim among salesmen that people buy emotionally and justify logically. This is exactly why most equity portfolios are filled with stocks that were once the darling of the media (*cough* CNBC *cough*) or something that the broker once had a ―hot tip‖ on. And having started wrong, investors often stay wrong. Due to the emotional pain involved in taking losses, investors often hang onto stocks that are dropping in value for too long. Having seen legions of investors go through the same meatgrinder again and again, we decided that it is time Indian equity investors had an alternative. We first went about filling the most obvious holes that existed in the tools available to Indian retail investors to effectively manage risk in their portfolios. Our online portal, StockViz, now offers trailing-stop-loss alerts (for the first time in India), along with shifting price-based alerts (for example: 2% below yesterday‘ s close), a live heat map of the portfolio (that shows concentration of risk), pre-set technical filters, news alerts and daily P&L reports to help investors stay on top of their portfolio. Once we had the tools we needed, we set out to create an algorithmic portfolio management system, which once deployed, would automatically rebalance the investors‘ portfolio towards profitable positions. The algorithm should: Pick the right stocks Manage position sizing Manage risk Exit at the appropriate time The data and the analysis for each of the steps outlined above would be different for different risk scenarios. For example, for the short-term trader, #1 could be trend detection, whereas for the medium-term investor, #1 could be momentum based. However, the underlying thesis is the same: over the same timeperiod, a systematic, repeatable and testable process is any day better than a human making decisions, no matter how high his or her IQ could be. We then brought them all together in the form of a Quantitative Portfolio Strategy Execution service where we deploy the algorithm to manage client portfolios. We have but only scratched the surface of what we set out to do. Our long term vision is to democratize and simplify systematic, process driven investment. ABHISHEK PREETAM BATCH OF 2010 IBS HYDERABAD