How To Protect Your Portfolio By Following The Signals From The Consumer Sectors

When building these quantitative strategies you always need to make these kinds of trade-offs to some degree. All things considered, an equal-weighted approach is arguably superior to market-cap-weighted in this case, but there are also some solid arguments against equal-weighted ETFs.

The Bottom Line

These kinds of quantitative strategies have both their weaknesses and strengths. They tend to perform well in the long term, but they also produce false signals from time to time, especially when the markets are moving sideways. Importantly, when market trends are changing rapidly, there is always the risk that the strategy will not be able to react with enough speed.

But the idea is not making investment decisions based on one single indicator or strategy. We need to have multiple tools and indicators to evaluate market conditions, and then we make investment decisions by weighing the evidence from those indicators. A strategy such as this one should be seen as one piece of evidence in the big market puzzle.

The most serious mistakes that investors typically make are due to cognitive biases and emotions such as fear and greed. With this in mind, an investment approach supported by hard data and quantified evidence can be enormously valuable to make better decisions in the market.

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Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in ...

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