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An “investment model” is an approach that a manager uses when determining the components of their portfolio. Investment models are generally based on a specific, underlying investment strategy or philosophy about what drives the market or how to achieve specific investment goals the manager hopes to achieve.
As you probably know, those who follow and invest in the stock market have many different theories and approaches regarding how to succeed over time. For example, there are "value investors." Probably the most well known value investor of our time is Warren Buffett, who actually derived much of his philosophy from a man named Benjamin Graham, author of a famous book called “The Intelligent Investor.” Graham believed that investors should identify great companies and buy their stocks only when they dropped to the right price, within what he referred to as the “margin of safety.” One should then hold that stock for the long term.
So a Grahamian investment model would only hold those stocks that fit this value investing criteria. Others - including those who practice “technical analysis” - believe that the market should be understood in a more mathematical or trend-based framework, and that stocks trade within certain price bands. You may have heard those who espouse this approach use phrases like a stock is “breaking through its support level.” An investment model created by a technical investor may be more actively traded than a model created by a value investor, because stocks are moving in a way that constantly creates “buy” and “sell” triggers.
Other investment models express a wide range of investment theses. If a manager believes that superior growth will come from the BRIC countries – Brazil, Russia, India and China – then his portfolio will likely be heavily weighted to those geographic markets. If a manager believes that technology companies will grow at a higher rate than others, and that their stocks will similarly outperform those in other sectors, then their portfolio will reflect that hypothesis.
Many individual investors have their own perspectives on the market, based on the reading they’ve done, their thoughts on where the world is headed, or even based on their own professional experience and what they’ve learned about different industries.
For a long time, it was difficult for investors to identify money managers who shared their beliefs. For example, you cannot call a larger brokerage house and ask them to assign you to an investment manager who believes in investing in just the BRIC countries, and knows all about them. Brokerage houses simply aren’t organized that way.
To fill that gap, Covestor was created. We make a collection of expert money managers – each with their own specific and unique investment models – available in a single place. These managers are located all around the world. Potential investors can find a manager whose investment model matches their goals, and whose background and process they find compelling.
On the Covestor platform, an investor can look into the performance of the money manager’s entire investment model. Interestingly, traditional advisors rarely, if ever, provide a client with that access. Once an investor finds a manager they like, an account is established and the investor’s portfolio is synched to the manager's so it mirrors each trade.
We hope you also find Covestor an helpful resource to learn more about the different investment models and strategies that our managers pursue.