Systematic investing
Investing by explicit, pre-defined rules rather than discretion or gut feel, so decisions are repeatable, testable, and free of in-the-moment emotion.
Also called: rules-based investing
Systematic investing follows a written rulebook: the same inputs always produce the same decision, whatever the mood or the headlines. It stands opposite to discretionary investing, where a manager decides case by case.
Its strengths are consistency and testability: a rule can be examined, backtested, and audited. Its discipline also removes many of the emotional errors that hurt investors most. Its limit is that a rule only knows what it was designed to see. It is the core of how Witan Way works.
Related terms
- Trend followingA rules-based approach that raises exposure to assets in sustained uptrends and reduces it in downtrends, following the move rather than predicting the turn.
- BacktestApplying a set of rules to historical data to see how it would have behaved. Useful for understanding a strategy, never a forecast of the future.
- Tactical Asset Allocation (TAA)Adjusting a portfolio's mix of broad asset classes over time in response to the market environment, instead of holding fixed weights regardless of conditions.
Read it in context
- A strategy is a decision method, not a predictionA prediction says what will happen. A decision method says what you do, under stated conditions, whatever happens. The difference shows up at the only moment that matters: when you have to act and the outcome is still unknown.
- What tactical asset allocation isTactical asset allocation, or TAA, adjusts how much of a portfolio sits in each broad category as conditions change, rather than holding fixed proportions through everything. Those shifts may be judged by a person or decided by written rules, but they move between whole categories, never between individual companies.