The Customized Active

Lot of times we get queries regarding, the paper model looks good, but there are few fresh entries. How do I go on model?

We did an extensive white paper on start point bias (Market Scenario Analysis), to explain how starting point bias does not affect the performance of the RMI. The starting point case was built to show our ability to customize a solution and explain to a large institutional client who wanted to run the RMI models for any starting point bias. We understand the RMI paper model and starting point convergence issues, which any investor may have.

How long will the RMI model performance converge or showcase in my portfolio? The convergence may happen in a few months, half a year or more. We have just tested that the starting bias does not affect performance, we have not tested for convergence or how long it may take for a fresh RMI model to converge with a back tested model. The results have shown that over few months or year, the model performances with different starting points are marginal.

The performance differential between real and model may be more for Active 10, considering it has just 10 stocks. If owing to starting customization you have slightly different 10, the performance differential may not be marginal. But that does not change the working of Active 10. The starting point could be just a good feeling of buying fresh. Because at this stage RMI Models do not know how long a winner would persist and when it will revert. Active entries don’t exit till there is a price confirmation. RMI models are designed as benchmarks and need no discretion. We believe all running entries should be bought irrespective, as exits are clearly defined.

Here is the running UK customized active performance from 1 Jan 2014.

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