As the 1990’s came to a close, Bill Matson, our Portfolio Manager, became increasingly concerned with the conflicts of interest, self-dealing, and lack of integrity tainting Wall Street’s advice to small investors, in addition to the dangerously inflated valuations being accorded to tech stocks.
To address these issues, he set out to create a uniquely comprehensive guide to stock market investing that was published in 2004 as Data Driven Investing (co-authored with Mitchell R. Hardy). Joe Moglia, then CEO of TD Ameritrade, one of America’s largest discount stock brokerages, referred to Data Driven Investing as “groundbreaking” in his own 2005 book entitled Coach Yourself to Success: Winning the Investment Game.
Ten of our most important investing principles are summarized in “DDIM Wit and Wisdom – The 10 Principles“, offered to the general public. It provides a disciplined approach for do-it-yourself investors seeking superior returns, as well as due diligence procedures for investors in the process of evaluating financial advisors.
Bill’s strategies were largely informed by exhaustive study of historical data, including millions of financial statement and trading data points for thousands of companies during the 52 years from 1951 to 2002.
Beginning in July 2000, when he became a full-time investor, the bulk of his securities portfolio was designated as a “Test Portfolio” (TP), in order to track the efficacy of principles detailed in Data Driven Investing.
The TP’s results have been encouraging, with gross returns exceeding 9900% between July 2000 and December 2022. On a compounded annual basis, returns for this period were 22.7%. Average annual returns were 29.1%. Note, however, that past performance does not guarantee future performance. Note also that the TP’s returns have NOT been audited by an independent third party.
Additional performance-related disclosures are presented in the “Performance” section of this site, as well as in the Data Driven Investing book. Understanding of all such disclosures is a critically important prerequisite to understanding the conclusions that may be drawn from the TP’s performance history.
>> The 2019 online edition of Data Driven Investing is available here. Note that this edition refers to ORF as a registered investment advisor. ORF voluntarily terminated its registration in late 2020, as it was incompatible with the business model that ORF intends to pursue.
Bill believes that his skills could best be used as the full-time employee of a family office, foundation, or endowment seeking to earmark a $20-$100 million portion of its portfolio for investment in small cap value stocks. He holds a B.S. in accounting from Babson, as well as Harvard MBA, CFA, CPA (Ret.), and CFP designations, along with over 30 years’ experience in accounting, banking, information technology, and securities.
The vast majority of investment advisors, especially those employed by large firms, are unlikely to be willing or able to properly implement the time-consuming sorts of strategies described in Data Driven Investing. This is understandable because time spent doing research and trading for their existing clients is time that’s not being spent gathering up the assets of additional fee-paying clients.
Moreover, other things being equal, the more client assets that a money manager gathers, the worse the returns on those assets are likely to be – because larger trades generate larger market impact costs. According to Warren Buffett, that is why his returns were far higher in the 1950’s and 1960’s than they’ve been in more recent years.
These problems can be minimized by hiring a well-vetted, full-time portfolio manager who is 100%-focused on the needs of just one client.