Choosing the Right Path: Comparing quantitative and qualitative portfolio management strategies in India

financialexpress.com:

For the longest time, fundamental analysts and fund managers such as myself have sat on our high horses claiming that investing/investment is purely an art; one bets on people which cannot be accurately modeled. While there is some truth to these statements, it is important not to disregard the importance of quantitative tools in both research and portfolio management.

In research, quantitative tools can help speed up research as well as help scour the breath of the market far more effectively. After having gone through the cases of corporate misallocation and misappropriation uncovered in the past decade, we compiled a list of markers in companies’ financials that were consistent across all the fraud cases.

With these further codifications, it becomes effortless for us to utilize our comprehensive in-house accounting check to identify any potential warning signs when evaluating company names. This allows us to not get carried away by stories and provide a very real health check of the companies.

The greater use case of such tools is however in helping us overcome our biases. In our desire to scour the entire breadth of the market for businesses that fit well with our investment philosophy, we wrote down our entire framework in code and converted it into a scoring mechanism. We then applied it across the entire gamut of listed companies in India. This tool helped us to achieve prowess in companies as compared to previously as we outline to prevail biases.

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For example in December 2019, steel companies saw a significant score improvement and conversely the biggest consumer of steel in India, the automobile industry saw the biggest deterioration in the score. The