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On July 14, 2023, I had a marathon conversation with DIY quant investor Ryan Telford, during which we discussed quantitative investing strategies, insights into microcap and nanocap stocks, and delved deeper into other approaches to microcap investing. And by marathon, I mean it lasted over three hours. Quite frankly, we could’ve probably spoken for another two. But don’t worry, we’ve extracted a few clips from the conversation for this week that we found interesting, and hope you will as well. We’ll also be working a ton more to dissect the video.

By the way, you might not have noticed, but we’ve archived 129 Clips so far and have over 70 more in our backlog that we are pushing to the pro portal as we speak. You can find them here.

Ryan is a full time engineer and started investing 10 years ago. He’s been able to log a compound annual growth rate of 40% in the last 3 years.

Telford shared some influential books that shaped his investing journey. Among them were “The Little Book That Beats The Market” by Joel Greenblatt, “Thinking Fast and Slow” by Daniel Kahneman, both featured in one of the clips below. He also touches upon “What Works On Wall Street” by James O’Shaughnessy and “Super Stocks”, by Kenneth L. Fisher as books that shaped his style.

Telford also writes at Seeking Alpha, where he describes himself in his profile titled, Portfolio Strategy, Historical backtesting, Quant model design, Small & microcaps, as being “obsessed with finding opportunities for alpha“. 

“A reader summed up my approach by referring to me as the “intellectual avenging angel”.

I am an individual investor who is obsessed with finding opportunities for alpha. I invest exclusively in quantitative strategies, through the use of current and historical data, and by looking at a group of stocks rather than individual securities. 

Using data to inform investing decisions rather than the narrative of the day can provide a real edge.  I am very passionate about separating the truth from the noise, and uncovering true opportunities that others have missed.

I research and develop all of my own alpha generating stock trading strategies using Portfolio123.”

He elaborated on timing the market using two quantitative methods, and explored the concept of finding “super stocks”, a term coined by Ken Fisher based on his book by the same name. The book suggests new techniques for evaluating stocks and predicting future profit margins.

He implements his quantitative investing strategies in smaller capitalized stocks because of existing inefficiencies that allow investors to capture amplified returns. Telford discussed his investment approach, which encompasses factors like growth, valuation, balance sheets, market dominance, and cash flow.

Ryan emphasized his use of backtesting, analyst estimates, and a typical holding period of three to twelve months, revealing that his approach is purely quantitative, largely avoiding individual 10-Ks or 10-Qs, and management interviews.

Throughout the conversation, we explored various investing perspectives, including contrarian investing, with a brief mention of shorting stocks. Ryan employs an overall strategy rather than fixating on individual stocks, ultimately landing on a portfolio comprising 25 to 30 stocks. He takes a disciplined approach, avoiding emotional attachment to stocks and selling based on predefined rules or signals generated by their strategy.

Much of the discussion revolved around quant strategies, factor investing, and the numerous advantages of focusing on micro-cap stocks. We delved deeper into the design and implementation of quant strategies, including ranking systems, screens, and buy/sell rules. We also emphasized the significance of industry analysis and the potential for finding opportunities in industries experiencing cycles of growth and consolidation.

I hope you enjoy the few clips we highlight below. You can find the full in-depth conversation here

Please enjoy my team’s summaries of the clips below…

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