STREET DOGS

From the Financial Times:

Havelock London has an ambitious mission: to mesh computer science with the Sage of Omaha’s “value investing” principles.

Instead of trading in and out of stocks at a moment’s notice, or trying to ride hot market themes Havelock wants to build a system more akin to a computer-powered private equity firm, going deep into a small number of companies. Paraphrasing Warren Buffett’s mentor, Benjamin Graham, he argues that quants try to make money out of the market’s shortterm “voting machine”. Havelock is trying to profit from the market’s longer-term “weighing machine”.

“With the rise of quantitative investing, the market’s attention span has shortened,” says Havelock’s CEO Matthew Beddall. “We want to build better models to value businesses.”

Only 11% of US equity quant funds have managed to beat their benchmarks in 2019, according to Bank of America. Some analysts say that with quants mining realtime feeds of alternative data such as credit card sales, app downloads, satellite images, social media chatter and mobile phone geolocation the investment industry is speeding up. The catch is that the profitability of many of these signals tends to decay rapidly, forcing funds into a neverending hunt for new ones.

That may have opened up richer opportunities for investors with a longer-term horizon, says Savita Subramanian, head of quantitative strategy at BofA. She estimates that valuations explain nearly 90% of the S&P 500’s returns over a 10-year horizon better than any other factor the bank’s analysts pored over.

Havelock’s six employees currently track 38 companies, and add just one a month, they say, to ensure analytical rigour. The investment group builds models to value these businesses using a combination of human judgment and algorithmic analysis.