We recognize the tendency to get caught up in the performance of individual stock (or ETF) picks within a strategy. However, we must transfer our attention to the wider picture - the process itself. The effectiveness of a strategy should not be measured just by the performance of its individual picks. In this blog post, we will discuss the significance of sticking to a process and accepting both winning and losing picks as a part of the plan. We will use Berkshire Hathaway as an example to demonstrate how even a highly successful investment can have underperformers while still achieving excellent long-term performance.

When using the iQ Portfolio Optimizer, it is important to keep in mind the "garbage in, garbage out" principle. Restricting the Optimizer to selecting investments based solely on a specific year’s returns (i.e. 2022) limits its true capabilities. This undermines the purpose of portfolio optimization, which seeks to create a diversified portfolio for long-term returns by considering long-term historical correlations.

“Investments often appear to decline right after I decide to invest in them” is a common observation made by investment advisors; however, this occurrence stems from the tendency to choose investments based on short-term outperformance, disregarding the fact that no investment rises indefinitely and generally experiences a temporary slowdown after a remarkable surge.

Max drawdown, a popular measure of investment risk, measures the greatest peak-to-trough decline in an investment's value over a specific time period. Despite its popularity as a tool for assessing an investment's downside risk, it has significant drawbacks and limitations.

iQUANT investment models employ multiple factors in an attempt to improve diversification, risk management, alpha generation potential, and capture multiple sources of outperformance in a systematic and efficient manner. 

By utilizing a portfolio optimizer, investment advisors gain a powerful tool that streamlines the decision-making process, helping them construct well-diversified portfolios tailored to their clients' goals and risk preferences. This not only enhances advisors' ability to generate optimal returns, but also fosters greater client satisfaction and confidence in the advisory relationship, ultimately strengthening their professional reputation.

One of the key metrics used to measure investment returns is the compound annual growth rate (CAGR) and average annual return. In this blog post, we will explore the differences between these two measures and why the CAGR is often considered a more accurate measure of investment performance.