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Robert E. Bronson, III
Principal
BRONSON CAPITAL MARKETS RESEARCH
Guest Contributor

About Bob Bronson

For the past 38 years, Robert E. Bronson, III has applied a disciplined, analytical approach to understanding and forecasting capital markets and advising investment advisors.  Through his rigorous analysis of capital markets and economic data and his background in mathematics and financial economics, he has developed a number of unique investment concepts and refined portfolio-management techniques that improve returns and lower downside-volatility risk.

One of the most important investment concepts Mr. Bronson has developed is a forecast-driven, tactical and strategic asset-allocation forecasting and portfolio-management style that he calls Cycle-Trend Anticipation.  This forward-looking and primarily contrarian approach combines a full range of fundamental and technical indicators into weight-of-the-evidence, bottom-up explanatory models, which are further integrated into top-down, composite forecasting scenarios.  Mr. Bronson uses his dynamic models to forecast significant buy-sell turning points and the relative magnitude and duration of those cycle-trends.  His quantitative models cover domestic and foreign capital markets, financial and tangible asset classes, and various investment styles.

Mr. Bronson combines an unusually comprehensive range of indicators in his models, blending conventional fundamental, technical, and quantitative factors with dozens of customized indicators that track monetary/economic, valuation/sentiment, social/political, and inter/intra-market technical data over multiple time frames, ranging from hours and days to decades and centuries. He continually reweights, reformulates, and creates indicators in his models in response to the ever-changing capital markets.

His Cycle-Trend Anticipation style is reflected in his portfolio management techniques of absolute (rather than relative) performance targets, downside-volatility risk control, partial positioning, selective diversification, and forecasts over multiply nested time horizons.

To more accurately model and forecast the dynamically interrelated capital markets, Mr. Bronson has developed proprietary, advanced computational methodologies by using a multi-disciplinary approach, applying selected concepts from cutting-edge developments in economics, mathematics, physics and other fields.[i]  He has enhanced conventional computer-modeling techniques by developing new forecasting algorithms and advanced methods for recognizing and applying aperiodically cyclic, fundamentally-driven patterns in the capital markets.

Mr. Bronson is a long-time critic of the popular investment strategy of buy-and-hold, which ignores and fails during secularly underperforming BAAC Supercycle bear market periods.  He is also a critic of stationary (non-time-varying) mean-variance analysis applications from Modern Portfolio Theory (MPT), such as the widely promoted asset-allocation optimization method known as the Efficient Frontier, which is based on extrapolations from stationary assumptions that ignores both the fundamental causes of capital-market movements and the intrinsically cyclical nature of performance and (especially) downside-volatility risk.  Such rearview-mirror statistical optimizations encourage investors to pile-in at tops and panic-sell at bottoms of significant market moves by overweighting the recent best-performing assets and investment styles, which are vulnerable to greater losses during inevitable bear markets - especially those of severe magnitude and/or long duration, as has been demonstrated over the past several years.  Mr. Bronson is also a critic of Monte Carlo simulations, which wrongly randomize market performance that actually occur in runs, or extended trends. This statistical short-cut attempts to bypass the need to understand capital-markets history and to apply fundamental analysis, thus needlessly exposing investors to downside-volatility risk.

Rigorous methodology for identifying the secular periods of under- and over-performance, or BAAC Supercycles, is among the significant contributions Mr. Bronson has made to the Post-MPT era.  Other key concepts he has developed include: Downside-Volatility-Risk, perhaps the most effective measure of investment risk as perceived by investors; the Growth Cycle, a pattern recognition tool that reconciles the consequences of all technical chart patterns and minimizes the trend-following lags in such analysis; cyclical correlation analysis, a correction of the ex post-trend bias in the application of the popular form of correlation coefficient, a mainstay in the development and use of financial derivatives; and Mass-Correlation, Hyper-Volatility Illiquidity Events, the fundamental explanation and analytical formulation of meltdown contagions and severe bear market selling climaxes.

Mr. Bronson has authored a number of ground-breaking investment research papers, including: “The Case for the Third Supercycle Bear Market Period of This Century”; “SMECT: A Long-Term Stock Market And Economic Cycle Forecasting Model”; “Market P/Es As A Forecasting Tool”; and “Searching for the Dominance of Asset Classes and Investment Styles.”  He currently is completing “A Multifactor Valuation Model” and co-authoring “Profiting from Supercycles.”  His research and capital market forecasts have been quoted and referenced in The Wall Street Journal, Barron’s, The Wall Street Transcript, Institutional Investor, Derivatives Week, Financial Planner, Investment Advisor, Stocks and Commodities, and Futures.

Mr. Bronson’s 38-year career in the financial services industry has spanned investment research, portfolio management, financial planning, due diligence, syndication, and consulting. At age 23, he and his partner founded an investment research firm for institutional clients and were among the first to use mainframe computers for investment research. Since 1967, he has served as an investment strategist and consultant to various investment advisory firms and is the principal of Bronson Capital Markets Research.

[i] Selected concepts from various fields that he integrates in his research include: history (capital markets, economic, political and military); behavioral finance (systematic irrationalities [popular myths and fallacies] and other decision traps, applied game theory); neuroeconomics; social psychology (deviant behaviorism and cultural/religious mythology); evolutionary economics; bioeconomics; econophysics; computational economics (agent-based modeling in complex adaptive systems, emergent cellular automata and other self-organizational patterning); phase state chaotic attractors-repellers and symmetry-breaking; catastrophe theory (sandpile physics); pulse-coupled mechanical and biological oscillators; fractal geometry; number theory (especially progressions); multiple band-pass signal filters and other time-series oscillators; computer inference technologies (expert systems, polynomial networks [best fit optimizers], fuzzy logic [approximate reasoning], genetic algorithms [empirical discovery], neural networks [trainable classifiers]); multivariate econometric modeling; and non-parametric statistical analysis techniques.

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