Quality Money Management : Process Engineering and Best Practices for Systematic Trading and Investment

46 CHAPTER ◆ 4 Managing Design and Development

● Defend their strategies through continuous improvement against competitors

launching their own systems.

Financial innovation is not just inspiration or genius. It ’ s hard work and management

must be committed to its systematic practice to make it happen. To succeed, managers

must identify new opportunities, assemble product teams, and oversee the process of

development, with the end goal of creating more and more revenue-generating business

units that junior employees can maintain and enhance. 3M ’ s “ official vision statement

is to be ‘ The Most Innovative Enterprise in the World. ’ Unofficially, it seems that almost

every [3M employee] has a pet project or some team activity that is focused on promoting

innovation in his or her particular area. ”^3

4.2. Portfolios of Trading/Investment Systems

Cooper, Edgett, and Kleinschmidt in their seminal text Portfolio Management for New

Products report that top performing firms in other industries have:

● An explicit, established method for portfolio management.

● A management that buys into the method and supports it through action.

● A method with clear rules and procedures.

● A method that treats projects as a portfolio.

● A method that is consistently applied across all appropriate projects.

● A tendency to rely less on financial models as the dominant portfolio tool, and more

on business strategy to allocate resources and make portfolio decisions.^4

No trading/investment system, or proposed trading/investment system, exists in a

vacuum. Each trading opportunity will inevitably compete with and be evaluated against

other trading ideas. As a result, it is important for top management to develop portfolio

evaluation methods and perform periodic portfolio reviews.

Portfolio evaluation methods are not the same as the project evaluation methods

administered at the respective gates. Rather, portfolio management methods are priori-

tization and resource allocation tools. (It just happens that in terms of timing, portfolio

evaluation processes fit well with gates.) If a particular trading/investment system under

development is allowed to proceed to the next stage, management can also at that time

make a decision regarding the project ’ s priority relative to that of other projects. Effective

portfolio management leads to:

● A ready willingness to kill trading system development projects.

● Focus, that is, not having too many projects and resources spread too thin.

● Rigorous review and tough decision points.

● Choosing the right projects.

● Strategic criteria for project selection.

The portfolio management process requires a strong commitment from top manage-

ment and should include periodic reviews of the portfolio of all trading/investment

systems. Weak portfolio management translates into a reluctance to kill new trading/

investment system projects and a selection process based on emotion or politics. The end