FIRST QUADRANT BELIEVES...


  • Behavioral Biases and Structural Imbalances create market inefficiencies.
  • The Scientific Method is the best way to identify these inefficiencies.
  • An Adaptive Investment Process generates differentiated returns by exploiting a diverse set of these inefficiencies.

Investing should be approached with a rational and an intuitive understanding of what drives markets. We think this perspective is necessary to identify (and then exploit) market inefficiencies – our source of alpha, or excess, profit.


Investors demand stability in their returns. The greatest challenge in delivering on that promise stems from the fact that all active investment opportunities experience cycles of profitability. That is, all market inefficiencies undergo phases of expansion and contraction.

For example, there is not always an abundant supply of cheap stocks to buy and expensive stocks to sell at any given point in time. Even pure value investors encounter situations in which opportunities are few. We respond to this challenge in three ways:


BUILD BREADTH: DIVERSIFICATION REMAINS THE MOST IMPORTANT PRINCIPLE OF INVESTING > Relying upon a wide array of market inefficiencies diversifies alpha in a manner similar to the way that broadening the holdings diversifies a stock portfolio’s total risk. Diversification among independent alpha sources is what is meant by “breadth,” and portfolios with breadth of alpha sources deliver a more consistent alpha.

RESPOND TACTICALLY: TRULY ACTIVE INVESTORS ARE OPPORTUNISTIC > Once the fishing hole is fished out, you only return when the catch is replenished. By refocusing portfolios on areas where inefficiencies are at their cyclical peak, we are better positioned to bring home the alpha each night with greater consistency.

INNOVATE RELENTLESSLY: LEADERS NEVER REST IN THE COMPETITION FOR RETURN > Market inefficiencies come and go. Particularly when other investors seize upon the same opportunities, excess profits shrink and sometimes disappear entirely. It’s essential to constantly troll the waters for new market inefficiencies — ones that have not been widely identified. This demands increasing skill as our industry advances.

The unique way in which FQ combines these three actions separates us from our peers and gives us our competitive edge.