Our Methodology

Clients realize improved performance with Cabot Behavioral Analysis (CBA), in part, due to our highly disciplined approach. From data capture and analysis through daily support and assessment of progress, our four-step methodology helps guide fund managers towards more profitable investment behaviors.

1. Portfolio Analyses

Insight you can act on

Cabot Behavioral Analysis (CBA) begins by analyzing the buy/sell decisions within a portfolio. The analyses then uncover persistent patterns or behaviors amongst the buys and sells. For example: Is your selling sometimes unintentionally affected by erratic price movement or changes in consensus forecasts? Do you regularly sell winners differently than losers?

CBA then computes the potential for enhanced performance associated with altering each of the behaviors identified. Can changing one or more of these behaviors add 50 bps, 100 bps, 150 bps or more to annual alpha and return? Finally, CBA computes the statistical significance and predictiveness (e.g., In Sample and Out-of-Sample testing) associated with shifting each behavior.

2. Shift Selection

Honing decisions

Cabot Behavioral Analysis then selects that group of shifts, from among all potential shifts, that provides the greatest combined expected benefit (basis points) and predictiveness (likelihood the benefit will last). The process or algorithm used begins with the very best finding or shift and then selectively adds shifts that both increase benefits and improve predictiveness. For some clients this means implementing 4 or 5 shifts at once. For others it might mean focusing on 1 or 2 shifts. The outcome is always to identify that small number of shifts that deliver the greatest benefit with the strongest statistical significance. The final shifts enable managers to address aspects of their decision-making which, when honed, will provide substantial and lasting improvement.

3. Implementation & Support

Where insight and decisions become results

You begin to capture incremental performance the first day you implement your Behavioral Shifts. And, the dividends compound every day thereafter.

Cabot Behavioral Analysis supports the implementation of your shifts with 3 daily indicators. 1. Discouraged Buys helps you improve by avoiding those buys which are shown to have persistently underperformed; this allows you to focus more energy and capital on what really works. 2. Discouraged Sells assists you in selecting which positions to let run. Capturing all the performance in your buys requires knowing where your advantage runs long and allowing those positions to deliver their full performance. 3. Favored Sells represent positions that tend to stay in your portfolio beyond their usefulness and are ready for recycling. Favored Sells point you to positions that are excellent sources of liquidity to support new buys or fund outflows.

4. Review & Improvement

Learning never ends

Cabot Behavioral Analysis (CBA) helps you manage your success with a variety of concise, intuitive reports. You can start with portfolio level measures of behavioral improvement and then drill all the way down to asset-by-asset information. You learn what you want when you want it. That way every decision you make can be well informed – putting maximum power behind your judgments.

CBA keeps you up-to-date on how daily decisions align with chosen behavioral shifts. You learn how well you are doing and how performance is improving. CBA also guides you to new shifts as the opportunities from current shifts are fully captured. You have better insight, you make better decisions, you deliver better results.