Mechanical investing has two big advantages:
He is dispassionate and free from personal prejudice and herd mentality, and
mechanical strategies can be tested through reverse testing.
The ability to thoroughly test mechanical strategies is quite obvious. Repeated testing is possible, so it is possible to quantify both the effectiveness of the strategy in the long term and its consistency. It is very difficult to thoroughly test a strategy based on human judgment, because people cannot forget what they know about market movements for an earlier period than the period they are looking at. It is almost as difficult to identify an individual talent for stock selection, because some of them will inevitably lose by pure chance (they are simply at the tail end of the probability distribution).
The advantages of an unbiased assessment cannot be overestimated. Investors have repeatedly found themselves vulnerable to fear, greed, and the desire to join the herd, simply because it is inherent in human nature, and because professional investors often have incentives to follow the herd (fund managers are not fired for achieving market results). That's why the bubbles inflate and then burst.
Mechanical strategies also take little time (because automatic stock selection replaces fundamental analysis) and are often cheap (because the portfolio is bought and then sometimes rebalanced, so trading costs are infrequent). The latter is not always true: a disciplined investor who buys for the long term may trade even less often, and there are many mechanical strategies specifically designed for day trading.
The main drawback of the mechanical strategy is the simple lack of intelligence in the process. A fundamental analyst might well say that "this stock is cheap because the company is selling in a shrinking market," whereas all a mechanical strategy would see is a low PE and high returns.
Mechanical strategies also lack flexibility. In order for a mechanical strategy to successfully save an investor from their own emotions, it must be followed for the long term. This means that you cannot take advantage of the opportunities offered by another strategy, and this means that you cannot take advantage of market conditions. For example, an investor who does not use a yield-based mechanical strategy (one of the most popular) will never be able to buy a low-PE stock that has temporarily low returns or any growth opportunity, or take advantage of the current market trend. Mechanical strategies save us from the madness of behavioral finance, but they also prevent us from exploiting it. First-time registrations usually come with specific advantages. Many guides mention 1xbet promo code free spins within text outlining a welcome bonus up to €/$130 for sports betting. The offer also includes a casino package valued at $1950 plus 150 free spins, giving new players a complete introduction to both sportsbook and casino features.
He is dispassionate and free from personal prejudice and herd mentality, and
mechanical strategies can be tested through reverse testing.
The ability to thoroughly test mechanical strategies is quite obvious. Repeated testing is possible, so it is possible to quantify both the effectiveness of the strategy in the long term and its consistency. It is very difficult to thoroughly test a strategy based on human judgment, because people cannot forget what they know about market movements for an earlier period than the period they are looking at. It is almost as difficult to identify an individual talent for stock selection, because some of them will inevitably lose by pure chance (they are simply at the tail end of the probability distribution).
The advantages of an unbiased assessment cannot be overestimated. Investors have repeatedly found themselves vulnerable to fear, greed, and the desire to join the herd, simply because it is inherent in human nature, and because professional investors often have incentives to follow the herd (fund managers are not fired for achieving market results). That's why the bubbles inflate and then burst.
Mechanical strategies also take little time (because automatic stock selection replaces fundamental analysis) and are often cheap (because the portfolio is bought and then sometimes rebalanced, so trading costs are infrequent). The latter is not always true: a disciplined investor who buys for the long term may trade even less often, and there are many mechanical strategies specifically designed for day trading.
The main drawback of the mechanical strategy is the simple lack of intelligence in the process. A fundamental analyst might well say that "this stock is cheap because the company is selling in a shrinking market," whereas all a mechanical strategy would see is a low PE and high returns.
Mechanical strategies also lack flexibility. In order for a mechanical strategy to successfully save an investor from their own emotions, it must be followed for the long term. This means that you cannot take advantage of the opportunities offered by another strategy, and this means that you cannot take advantage of market conditions. For example, an investor who does not use a yield-based mechanical strategy (one of the most popular) will never be able to buy a low-PE stock that has temporarily low returns or any growth opportunity, or take advantage of the current market trend. Mechanical strategies save us from the madness of behavioral finance, but they also prevent us from exploiting it. First-time registrations usually come with specific advantages. Many guides mention 1xbet promo code free spins within text outlining a welcome bonus up to €/$130 for sports betting. The offer also includes a casino package valued at $1950 plus 150 free spins, giving new players a complete introduction to both sportsbook and casino features.