The anti-emotion approach to stock trading
Dr Anton Dudoukin and Dmitry Dudoukin are partners in Courant Asset Management Ltd. Courant Asset Management is the managing company of Courant Fund. Current Fund’s AUM is USD28.7million. Courant Fund is an equity long/short strategy that uses systematic short-term trading models.
The strategy was first developed back in 1998, but it wasn’t until June 2007 that the decision was made to structure it as a hedge fund; that year, between June and December, it returned 13 per cent. Courant then started accepting external investors from 2008 onwards.
“Our average annual returns over the last five years are 16.15 per cent. We were rated number seven in the top ten equity long/short category for best performance over the past three years by BarclayHedge: generating three-year compound annualised returns of 28.27 per cent,” says Dmitry Dudoukin. The BarclayHedge report was published in the second quarter of 2012.
The Courant fund trades a universe of roughly 2,000 of the most liquid large-cap stocks in the US market and uses a countertrend strategy to buying and selling stocks. “We use proprietary statistical scanning models every day to scan the market for low-price stocks to buy (in a falling market), and high-price stocks to sell (in a rising market),” explains Dudoukin.
What makes this strategy so compelling, given that last year it generated returns of 27.95 per cent, is that it uses no leverage. Net exposure ranges from -100 to +100, meaning gross exposure at any given time never exceeds 180 per cent.
“We use value signals and number of technical indicators in the statistical model to identify which stocks to buy and sell on a short-term basis. We buy stocks that are falling, and if they continue to fall we buy again: we do this up to four times for certain positions using 2 per cent of the fund’s NAV.
“The maximum exposure for a single long position in the fund is 8 per cent of the fund’s NAV. For shorts, the biggest exposure for any single position is 6 per cent,” says Dudoukin.
Research lies at the heart of the operation. For every hour of daily trading, seven hours are spent analysing data. One of Courant’s key differentiators compared to other similar funds is this disciplined approach to research and risk management. If the team doesn’t like elements of the strategy that worked a year ago, but not today, it conducts new quantitative research, draws conclusions and then decides how best to implement new ideas.
In that sense the strategy constantly looks at what was done in the past to decide how best to trade in the present. Everything is constantly evaluated to ensure the model is successful.
“Everything is 100 per cent systematic in our trading. Nothing is done on emotion. We are anti-emotion. That’s why people invest their money with us,” states Dudoukin.
The strategy’s best performance came in 2009 when it returned 34.8 per cent. Most of these gains came from short positions says Dudoukin. The market was very choppy, causing stocks to climb for a few days then fall again, which played straight into Courant’s hands. The strategy tends not to favour markets that move slowly or have low volume, which has by-and-large been the case in 2012: the fund is currently near flat, up 0.03 per cent YTD.
“It’s normal for the strategy to be flat for a period of time, like this year, because we need volume and movement in the market. We need investors to be active, which right now they aren’t.”
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