Our objective is to enhance the performance of investment portfolios through systematic analysis of market data and competitive strategies. We develop models and tools to improve the focus of investment strategy. The three primary areas of practice are competitive strategy, identification of over valued and undervalued securities, and identification of information flows into markets to concentrate investment in areas of imminent change.
Identifying the proper target
A very large proportion of the observed performance of our individual investments results from things that we are unable to control or predict. All investment markets are competitive, so every purchase for a portfolio is sourced by a seller who is making the opposite bet. Every sale from the portfolio is to a buyer with different (more positive) expectations. Without a clear view of the our own objectives and how they fit into the strategy context of competitive investors we cannot achieve a high level of focus on maintaining competitive advantage. Our solution is to develop and enhance tools to asses the competitive environment in a dynamic and timely manner. This provides the basis for maximizing the effectiveness of security and portfolio decisions.
Separating prospective winners and losers
Security selection begins with a belief that we can predict future performance of some secutities (or combined sets of securites) better than the consensus prediction embedded in current prices. Success depends on an ability to either identify transient pricing anomolies brought on by local market stresses or mispricing that results from predictable investor behaviors. Statistical analysis of the historical behavior of markets suggests a number of promising models for enhancing return predictions. We look for persistant factors associated with predictable performance. These can take numerous forms and include traditional valuation models, momentum models, models of spread relationships, and investor over/under reaction to event models. We combine our best models to identify promising candidates for above and below average future performance relative to appropriate competitive norms.
Strategy enhancement with effective timing
Seasoned investors know that being right is only one part of achieving competitive success in investment markets. The timing of the initial investment and successful termination of the investment position have a significant impact on the rate of return earned. It is not uncommon for value investors to make the right decision and then wait for considerable time for that value to be reflected in price. Similarly, momentum strategies may result in holding on too long and giving back a considerable portion of the gains achieved. Our solution is to monitor each security (or spread combination) for evidence that a state change is imminent. We are continuing to develop technology to identify such state transitions and to focus each strategy on the relevant "sweet spot" that maximizes strategy performance. Successful identification of these state changes can substantially improve the performance achieved by any strategy.