Having seen first hand the processes and execution of the processes by various investment houses over the years, we felt that some aspects of their approach were wrong and that by not employing these we could enhance performance and more importantly Alpha. To this extent we went against normal practice and decided that we had to build an Asia ex Japan Long Short Equity model that would embrace the good elements of their process but not let what we perceived to be the bad elements hurt our performance. As a result of this we built a model that would have the following as its core.....
- NO MACRO OVERVIEW - The reason for this is that we did not want to have a predetermined view of where we should be looking to make investments whether that be on a country or sector level. We feel strongly that if you spend a lot of resources on doing this you are constantly reinforcing your own personal views. If, after all that work, you make the wrong calls on the macro level and hence your country and sector allocations, then no matter how good a stock picker you are, you will never outperform the market.
- NO PREDETERMINED VIEW ON GROSS & NET EXPOSURE - This partly falls into the above point, but we feel strongly that our investment process helps to eliminate a lot of the risk. On that basis we will follow the results of our investment process providing that our strictly enforced risk management rules are not broken.
- NEW AND UNIQUE WAY OF VALUING A STOCK - We wanted to find a way of valuing a stock that would work across all markets, sectors and accounting standards whilst also providing a fair value and a price target for each stock.
- NEVER LOOKING FOR AN INVESTMENT IDEA - We wanted to ensure that our personal feelings, whether they be about an industry type, company or indeed management of a company did not come into play. We wanted to make sure every stock in our universe was open for investment....subject that is to the stock meeting our criteria and our REVERSE ACTIVE MANAGEMENT process.
- NO CHASING BETA / MOMENTUM - Despite what people say they do, we have seen first hand investors chasing momentum and Beta. We wanted to ensure that our investment process did not allow us to do this unless the stock made it through our investment process.
- NO EASING INTO A POSITION - We have also seen first hand the way that most managers ease into a position as they build up confidence in their stock pick. However, it is usually in the first stages of an investment that the real gains can be made.
- NO AVERAGING DOWN - Most managers, if they have a position going against them, would look to average down which partly ties in with the above point. However, our process lets the position run until it is stopped out, closed naturally, or no longer meets our investment criteria.