Investment Philosophy

The Failure of Active Stock Selection


Put simply, active stock pickers have always attempted to guess market winners by forecasting the future, but such an approach is archaic, unsystematic, and unpredictable.

We believe alpha comes from systematically avoiding the losers.

Human behavior is the source from which all traditional risk metrics are born. Beta or PE Ratio do little to measure the risk of human behavior. These measures are merely proxies for risk but they do not actually measure the risk of loss caused by human behavior. They do not measure the Human Factor. If an investor hopes to avoid this risk, he or she must look at risk in an entirely new way.

Manage risk like an actuary, not like a portfolio manager.


The H-Factor – Know the Number

Investors impound vague and ambiguous information into their investment decisions, decoupling stock prices from their underlying fundamentals. This leads to loss.

Applying an actuarial-based approach, we developed a proprietary risk metric to avoid this behavior. It’s the H-Factor. This measure calculates the probability the company will fail to deliver the growth implied by its stock price.

Using the H-Factor as the foundation of our investment methodology, we can apply these probabilities to any portfolio or investment universe. We build portfolio solutions that aim to provide a dramatically differentiated and uncorrelated source of outperformance by simply avoiding the losers – overpriced stocks caused by human behavior.