Why we use models to help with the investment process:
- Provides structure for discussion; We don't say … "we feel the market is oversold".
- Provides discipline; creates sameness with decisions.
- Encodes history of markets through numbers.
- Focuses discussion on where there are disagreements. Models serve as a null hypothesis.
- Generates focus on where we are in the market cycle.
- Allows for "probability speak". We can talk about odds.
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