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…
