Respect the Markets - Embrace Technology - Invest with Discipline.
The foundation of an investment portfolio should aim for stability and relatively consistent returns.
We accomplish this for our clients through high quality investments in the following asset classes:
- Exchange Traded Funds (ETFs)
- Blue Chip Equities
- Conservative Option Strategies
Simply being conservative does not mean you cannot be opportunistic. Over time, we sometimes see exceptional price discrepancies, even in less-volatile assets that can be capitalized on. However, one must be patient.
Data is driving everything these days: From consumption to labor markets to trade. It was not until I read the Google book: Inside the Plex that I finally realized the competitive advantage given those that successfully wield relevant data. Who ever imagined Facebook and Twitter would graduate from social dalliances to valuable data warehouses and prediction machines; or that Google would become one of the world’s most profitable enterprises by making their ads hyper-effective based on reams of data.
Beyond the scourge of high frequency traders and what Michael Lewis has coined Flash Boys, the Street is capitalizing on data through high-powered, back-tested algorithms designed to ferret out the best investment opportunities. These endeavors attempt to identify where the big or smart money is flowing and for how long it is likely to last.
Many advisors and investors still rely on sell-side research, which is capable of identifying value but pays less attention to things like timing and relative strength. Instead, the opportunity exists to use software to help decipher more influential trends, valuations and capital flows. By embracing and implementing this methodology in your portfolio, you will be in a position to compliment your value investments and take advantage of the data-driven revolution.
How it works:
I employ a selection of third-party, proprietary algorithms that incorporate criteria with established influence on price. When the majority of them agree on an investment and I concur, we initiate and hold the position until any of the exit scenarios occur. An algorithm is simply a formula, a number of tests an equity must pass or boxes it must check. A lot of thought and testing goes into their creation, and they require timely and disciplined execution. They are not a magic formula, but are dynamic, allowing me to modify them to my preferences, which are: strong, competitively-valued, growing companies, in strong sectors. Specifically:
- Within one of the stronger sectors in a receptive or upward-trending market.
- An established company of decent size – i.e. typically large-caps.
- An equity that has been relatively out-performing and has upward-trending price over a number of time periods that, coupled with strong volume, indicate a persistent up-trend.
- One with good financial performance history and projections, such as the consistency of its quarterly financial results, balance sheet strength, business longevity and the direction of revenues, earnings and dividends.
- One at an attractive value based on discounted cash flow, forecasted EPS growth and profitability measured in the context of interest and inflation rates.
- Finally, a couple of sources, including my own, examine the technical position, or how good the chart pattern looks. Recall charts are visual interpretations of investor emotions and sentiments – two very powerful drivers of share prices.
When all of these Stars align, we invest.
With a prudent bent towards equities with relatively high levels of proven performance and consistency, we expect to remain in them for a while. That said, selling is at least as important as buying, so we apply all of the following exit criteria:
- The stock price crosses below a stop-loss price;
- Any of the algorithms indicates a “sell”;
- A “don’t be greedy decision.”
The Data-Driven investment mandate provides a strong competitive advantage. One conceived to complement more value-based positions. It is applied to fee-based accounts for fewer conflicts of interest and greater trading efficiencies. Consider it for a pillar of your portfolio.
Canadian small- and mid-caps can achieve both exponential outperformance and confounding underperformance. Knowing how to navigate this space has a significant impact on results.
When this market is out of favor, we focus a small portion of our investments on a few core positions. We keep a vigilant eye on management and operations to ensure they remain among the best opportunities in the sector. When this market is in favor, we will selectively add resources to it to capitalize on some of the greatest potential gains in the public markets.
Our excellent network and idea flow in this area provide clients with a competitive advantage.
This presentation was written by Randal van Eijnsbergen who is a registered Investment Adviser with Haywood Securities Inc. The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the presentation are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. The information contained in this presentation have been compiled from sources Haywood believes are reliable; however, Haywood makes no guarantee, representation or warranty, expressed or implied, as to such information’s accuracy or completeness. The views expressed are those of the author and not necessarily Haywood Securities Inc. All opinions and estimates contained in the reports are based on assumptions the author believes to be reasonable as of the dates of the reports but are subject to change without notice. Randal van Eijnsbergen can be reached at 604 697-7429 or firstname.lastname@example.org