The hunter and the farmer - whose side are you on?

Tuesday, Mar 27 2012 by
5
The hunter and the farmer  whose side are you on

There’s a war at large in the stock market today that may be hurting your portfolio returns without you even realising it. Over the last hundred years the players in the stock market have had a fairly standard approach to reaping their profit - that of the stock picking ‘hunter’. But in the last 30 years, as the technologies of data handling and computation have improved, a new breed of market player has arrived, the quantitative ‘farmer’ seeking to harvest rather than hunt profits. The last 5 years have seen such rapid advances in modern technologies that the dominance of the hunter is now seriously under threat. Financially it may pay off enormously to ask yourself whose side you are on.

The Hunter – or stock picker

Everyone loves to pick stocks - who doesn’t enjoy getting deeply ensconced in the story of a stock and seeing it multi-bag. There’s nothing as wonderful as being right and knowing that you knew it all along. And fortune has followed for the investors who’ve been skilful enough to pick and hold onto the right stocks for an entire career. Such luminaries as Anthony Bolton, Bill Miller or Warren Buffett have become legends in our time as the long term greats of the art.

The classical stock-picking ‘hunter’ will narrow the terrain down to a manageable collection of stocks and start analysing each individually. These kinds of investors have been known to “start at the A’s” and work their way systematically through the market until they find prey worthy of closer targetting. Their primary focus is on the company where they perform in-depth analysis both of its financial situation but also of more qualitative aspects such as analysis of its sector peer group, economic resilience and moat.

Frankly the majority of investors see themselves as part of this group. There is certainly a romantic ideal associated with the hunter archetype which goes so much deeper than just the sheer thrill of the chase. It goes so deep that the fund management group ‘Artemis’ used the hunter archetype as its marketing emblem for many many years.

The Farmer – or quantitative portfolio investor

There is though a rapidly growing group of investors that are far more interested in ‘characteristics’ than companies who seek to ‘harvest’ systematic mispricings from the rough of the stock market through quantitative techniques. In a stock market that’s predominantly dominated…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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2 Comments on this Article show/hide all

Warranstar 2nd Sep '15 1 of 2
2

Hi Ed
I don't think this is quite as black and white as you suggest. We don't have be either Hunters or Farmers. We can have a foot in both camps. For example I might get my initial stock ideas from any of the following sources:
1) Magazine tip
2) Paul Scott's Small Cap Value Report on here
3) A company news release
4) A screen that I have created on here with your terrific screening tools.

No matter where the original idea came from, I will then put the share through the same selection process. This looks at both qualitative and quantitative elements. After reviewing all the information, I will make a decision to buy or not. To me it makes more sense to review both the business and the numbers to arrive at the best decision. I don't see myself as either a Hunter or a Farmer, but am happy to use the best ideas from both approaches.

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iwright7 2nd Sep '15 2 of 2

Ed,

I run a Hunter pick and a Farmer factor based portfolio. The Hunter portfolio is 3 times the size and probably gets 10x the time input. The Farmer grouping is a Stockrank variant which has minimal time and lets the computer do most of the work. Too early to tell whether the Farmer will do as well as the Hunter, but I have been pleasantly surprised how well both have stood up to the recent China problems. So yes a foot in both camps, although the Hunter side is more intellectually challenging. Ian

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About Edward Croft

Edward Croft

CEO at Stockopedia where I weave code, prose and investing strategies to help investors beat the stock markets. I've a background in the City and asset management but now am more interested in building great stock selection tools for the use of investors online.   Traditionally investors online have had very poor access to the best statistics, analytics and strategies for the stock market and our aim is to set that straight.  High Quality fundamental information has been prohibitively expensive in the past and often annoyingly dull. People these days don't just want to know the PE Ratio and look at a balance sheet. They expect a layer of interpretation over data, signal from noise and the ability to know at a glance whether a stock is worth investigating or not. All this is possible using great design and the insights gleaned from quantitative research.  Stockopedia is where we try to make it happen ! more »

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