Thursday, November 12, 2026Boston

Adi Agrawal

Investment Philosophy: markets are human, research is the edge

What I believe

“Markets are a reflection of our collective consciousness and subconscious. To truly understand them, we must delve into disciplines ranging from economics and incentives to group behavior and game theory. Constant learning and adaptation can provide valuable insights.”

My belief statement about markets, Dec 24, 2024

Illustration: a crowd of small people around a jagged market price line. Some pull the line down on a rope, some push it up, some shout through megaphones, some watch screens, and others sit, walk or run.
Markets are human. Different people, different incentives.

Four principles

01

Depth beats rules of thumb

Shallow analysis, rules of thumb and behavioral biases are prevalent in our industry and allow for inefficiencies. Thorough research, deep understanding of markets, historical analysis and hypothesis testing allow us to sift through the noise to find true insight.

02

Cycles can be anticipated

Assets have macro and valuation cycles that can be predicted by such analysis. Confirmation bias, herding and an inability to be agile tend to cause these cycles. Investing on these horizons is a blend of art and science with many pitfalls, needing discipline and patience.

03

Markets are human

Markets are a collection of human behaviors and can produce interesting dynamics. We need to study behavioral tendencies and market participants’ motivations to better understand price movement and volatility.

04

Protect the downside

Markets, and especially equities, can suffer periods of high risk and drawdowns. Protecting client capital on the downside allows clients to lengthen their holding period, giving them a better chance of achieving their objectives.

How I research

Three lenses

Fundamental insight

These enduring truths form the bedrock of our field and have lasted for decades.

Examples: efficient markets, Kalecki’s profit equation, bond returns follow yields.

Future direction

Anticipating the long-term shifts in dynamics that could redefine our perception of the markets.

Examples: China’s policy pivot, demographics, climate.

Current dynamics

Important present-day events that influence markets in unforeseen ways.

Examples: Brexit, COVID, Russia–Ukraine, Israel–Hamas.

Three lenses Three equal, overlapping circles: fundamental insight and future direction side by side, current dynamics below them. Where all three overlap sits the case for future returns. Fundamentalinsight Futuredirection Currentdynamics All three together: the case for future returns

Understanding and analyzing all three components is required to predict future returns.

The alpha conviction map

Every investment approach is an implicit bet on what the investor can and can’t forecast. I map them on two axes:

Alpha conviction map Conviction in risk estimation runs along the horizontal axis and conviction in return estimation along the vertical axis. Market sits at the origin, diversified bonds just to its right, mean-variance on the diagonal at about 4% active risk, concentrated hedge funds and private equity high on the vertical axis, and levered long/short and risk parity far to the right. 2% 4% 10% Active risk appetite conviction in risk estimation conviction in return estimation Market Diversifiedbonds Meanvariance Leveredlong/short,risk parity Concentratedhedge fund Private equity
Redrawn from my original slide. Positions are approximate.
  • Conviction in risk estimation (horizontal). How confident the investor is in estimating defaults, liquidity, volatility and competition. Investors who lean this way diversify and avoid risky trades.
  • Conviction in return estimation (vertical). How confident the investor is in their return forecasts. Investors who lean this way favor growth, concentration and leverage.

The diagonal is active risk appetite. The arcs mark rising levels of active risk (≈2%, 4% and 10%).

ApproachWhere it sits
Market (passive)Origin: no conviction either way
Diversified bondsSome confidence in risk, little in return
Mean-variance optimizationBalanced conviction in both; around 4% active risk
Levered long/short, risk parityHigh conviction in risk estimation, low in return
Concentrated hedge fundHigh conviction in returns; around 10% active risk
Private equityHighest conviction in returns

Where would you place yourself? Most investors’ true position is different from the one they describe.

How I build portfolios

  • Start from the liability, not the market. Strategic allocation built on clients’ long-term liabilities and return forecasts, using efficient-frontier and resampled optimization.
  • Add active views where the evidence is strongest. Tactical cross-asset, sector and country positions from a hybrid process: fundamental analysis, quantitative models and behavioral insight.
  • Budget risk, not just capital. Risk budgeting, constant-volatility construction and factor-based risk models that expose hidden bets.
  • Hedge systematically. Options-based protection, delta replication and volatility overlays, combined with signals that forecast drawdowns, so clients can stay invested (Principle 04).

These are personal views on investment process. They are not investment advice or a recommendation. See Disclosures.

Disclosures