David Rosenthal: belief

Transcript context

…We do, yeah. The Royal Bank is a fascinating business, an incredible business that most people probably won't know. I've actually been lucky to be in more places in Canada than probably all but a few Canadians. Love the country and love that company. They are our largest, longest-standing client. They actually are the only outside owner of our business. They own a minority stake in our business. A deep long partnership with them has been a common thread throughout my career. There's an interesting story. Maybe we can come back to about a pivotal role they played in the first couple of years of my career in the times that I did get to see all those tiny corners of Canada. We definitely got to put a pin on that and come back. O’Shaughnessy Capital Management, the core insight (as I understand) that your dad had was that there was academic research around quantitative methods for investing and for screening and identifying equities. I believe equities or maybe all types of assets to invest in. Is it fair to characterize it as a data-driven approach to the old Ben Graham style, Graham and Dodd value investing? Is that a fair way to characterize the insight that he had? Yeah. I think a common misconception about quants in general where I would count us is that we're value investors. We're not slaves to value. It just happens to be one of those things that have worked really well historically. There are other things that are very different from the value that works too. But the original work was shockingly simple and oftentimes—as I find this is the case—no one had just gone to look at data to see what kinds of stocks with what kinds of attributes tended to do well. The original version of the research was literally the Dogs of the Dow strategy, which is nothing more than taking off the 30 Dow stocks. The 10 stocks that have the highest dividend yield, buying them, holding them a year. Redoing that same rule several years later with a single trade. He was the first person to bring that research all the way back to the inception of the Dow 30. What he found was this arguably stupidly simple strategy did better than the Dow itself. And that the two pillars of that were the discipline with which it was implemented, so you never deviated from a very, very specific process or rule set, and just bought stuff for a lower price. That strategy—like any strategy that gets discovered—tends to fade in its significance, but not necessarily go away. That was the original research that kicked off our entire journey as a company way back in the '80s—with an incredibly simple, by hand microfiche collected data set going back to the 1920s.…

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