Sweet Briar College student Jenny Young, who is testing rules-based investing models in Professor Tom Scott's "Principles of Investing" class, addressed a small group of investors at a cooking class in Richmond, Virginia last Saturday. Watch the video below to hear what she had to say about The Naked Portfolio Manager.



Want an update on Sweet Briar's performance v. Wall Street? Go to Professor Scott's website. (New to The Naked Portfolio Manager blog? For a description of the Sweet Briar experiment, read "How Sweet Briar students plan to outthink Wall Street" by Professor Scott.

Labels: Richmond, Sweet Briar, Wall Street

I was recently on "The Poppoff Show" with Mary Jane Popp and found it both an exhilerating and challenging experience! Mary Jane fired questions at me machine gun-style. Midway though the interview she said, "I just don't see the difference between 'naked strategies' and the traditional approach." Wow! I must have done a really bad job explaining it.

Naked strategies are, again, rules-based methods of coming to a decision based on predetermined criteria. Traditional methods, on the other hand, often have no framework for the manager to make a decision. The manager simply does the best he or she can based on the information available, including his or her training, education, and experience as well as his or her biases, prejudices, and idiosyncratic decision-making tendencies.

We need human judges for our society to function. We can't make all of our decisions based on rules/naked strategies. But there are times when rules simply are the best way to make decisions. The key is to pick the right decision-making method for the particular situation.

I explained to Mary Jane that using naked strategies was a very efficient, cost-effective method of coming to a decision - a method that is not used nearly enough on Wall Street.

The superiority of naked strategies versus human decision-making is well documented. Over fifty years ago, noted psychology professor Paul Meehl wrote a revolutionary book on naked decision-making (he referred to it as "statistical prediction") called Clinical vs. Statistical Prediction: A Theoretical Analysis and a Review of the Evidence, and since then, hundreds of studies have been done that validate the superiority of this method of making decisions. Yet Wall Street continues to ignore this important work.

After I got finished with the interview, I thought about the story of Moses. Remember when God asked him to lead the Isralites out of Egypt? He responded, " Not me Lord." But he became the messenger.

I don't know why the advantages of naked investing have been ignored for so long and why, with all the books written on investing, no one covered this important topic before. But I am going to make it my mission to educate the investing world about this topic. I am no Moses, but I have Twitter, Facebook, this blog, and its loyal readers. With your help, we can change the way people manage their money for the better, one investor at a time.

Labels: Moses, Paul Meehl, statistical prediction, Wall Street