ASC Methodology
Analytic Systems’ approach to forecasting is fact-based, rooted in recent economic history and mathematically driven incorporating new realities. The ASC Model opens a window into future economic trends, though the view is often so cloudy it is difficult to discern a clear pattern. Pattern recognition has its roots in a mid-70’s effort to detect Russian nuclear submarines. Tom Clancy’s “The Hunt for Red October” focused at amplifying the signal of state-of-the-art, relatively quiet submarines while dampening the “noisy” underwater environment.
This discipline can also be applied to the economy, where there is an abundance of “noise” such as: spin controllers in the government, the media, and Wall Street promoters. Pattern recognition has been used by institutional investors for over a quarter of a century to try to glean information from economic chaos.
Our sector analysis model is based on 6 key principles:
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Emphasis is on change rather than levels, as change is found to be the harbinger of the future. |
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The bell shaped curve applies to economic behavior. Abnormal change is more meaningful than normal change. |
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in Stock Behavior |
Instead of the market leading the economy, the relative price of equities lags economic behavior. This important determination facilitates a fact-based approach to forecast future stock behavior without an economic forecast. |
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Regression to the Mean |
In contrast to a relative-strength model (which says that a strong signal will tend to get stronger) our model suggests that above-normal signals are rare and are typically followed by normal or below-normal behavior. |
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No single variable is allowed to dominate the model. 20 Economic Factors contribute to our analysis . |
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Our experience has shown that fact-based and empirical data is more reliable than theoretical predictions. |
To determine causality of the many new elements in the new economic order, we analyze over 200 key economic variables to determine which ones have been most influential over the last ten years. If there are new factors that have become increasingly powerful and other ones are of diminished importance, the model is changed to reflect the new economic conditions.
Example: International trade, fixed investment, and production have become more important; while consumption factors such as retail spending and consumer confidence have become less important. Our model what modified to take this into account.At a time when it is de-rigueur to “forget economics” when selecting stocks, it is nonetheless critical to take into account specific macro-economic events which affect an industry or a company in a selective way.
Example: whether real events or changes in expectations, it is a lot easier to be a good stock picker if one is looking in the right sector. An example of recent macro-economic impact is with the insurance industry in 1990. The entire industry was thoroughly pummeled due to excessive fears of junk-bond and real-estate exposure, completely ignoring the industry’s particular strength in a recessionary environment.
