Investment Process

Our investment process is a unique blend of quantitative and qualitative approaches.

Once our algorithm detects a potential behavioral mispricing, our research process is used to distinguish actual mispricing from market efficiency. Identifying the investment’s critical factors—and how the market has formed beliefs about those factors—is fundamental to this process.

Our investment process summarized

Idea generation

Proprietary search algorithm deployed to identify potential behavioral mispricing

We utilize a quantitative approach—an effort we have internally developed and continued to improve over the past six years—to identify behavioral-mispriced securities every day among 4,000+ U.S. publicly traded equity securities.

Refinement process

Quantitative and qualitative methods used to distinguish actual mispricing from market efficiency

This step of our investment process is an act of removal. We identify and effectively separate true behavioral mispricing from ideas that are more likely the result of data provider errors, data anomalies, or market efficiency. This part of our process creates a feedback loop that allows us to monitor and improve our algorithm continually.

Portfolio and risk management

Rigorous buy and sell discipline from our proprietary behavioral models to guide our actions

This is the last step of our process, where we select the stocks for the portfolio. Our portfolio is equal-weighted across the ideas that make it through this process, providing our investors with unique exposure to the opportunities created by human misjudgment without significant single-stock risk.

 The marriage of quantitative methods, behavioral economics, and fundamental analysis lies at the heart of Thorpe Abbotts and provides a more holistic approach to our investment process.