Insights

In his autobiography, A Man for All Markets, Ed Thorp writes that as against the idea of efficient markets, there are pockets of inefficiencies that some of us can exploit. We paraphrase below what, in Mr. Thorp’s view, it takes to beat the market.

1. 1. Get good information earlier than the rest of the market. This is the information edge. It better applies to emerging markets and small and relatively obscure areas of the financial markets.
   2. Be a disciplined, rational investor, i.e., the edge. In our opinion, it is likely to be a much more enduring investment edge. It requires the investor to act not on whims and fancies but logic and analysis.
   3. Find a superior analytical method, i.e., analytical edge. As Mr. Thorp points out, there are many ways to skin the cat. The analytical techniques that worked for him included statistical arbitrage, convertible hedging, and card counting at blackjack. Other methods of analytical edge include superior fundamental analysis and the methods of some of the better hedge funds.
   4. Temporary mispricing in the market’s pricing mechanism. When you identify it, act quickly and invest before everyone else jumps on the bandwagon.

At Multi-Act EquiGlobe, we focus our efforts on being disciplined, rational investors and operating only in those spaces where we have an analytical edge. It is the reason why we stick to a select group of securities and businesses in each one of our funds. It is also why we spell out clear rules that define when we act, including our rules for acquiring a position and for disposing them off.

Keep in mind though, the analytical edge is not constant. As market participants catch up on to a well exploited analytical edge, it degrades. Therefore, we keep on engaging at pushing the boundaries of our analytical processes and will employ any and all tools that we believe will extend our analytical edge, including quantitative and technical tools.

Above all, we will act only within our processes and only when, in our well-reasoned opinion, the odds are in our favour. During periods of speculative fervour such as the one we are currently a part of, it means that we do not participate in the exciting opportunities. But then, excitement is not a part of our rulebook.