In an interview with Adam Smith, Warren Buffett said ‘To learn investing, one must learn about every publicly traded company’, to which Adam Smith responded ‘But there are 27000 companies’. ‘Start with the A’s’ replied Warren Buffett.
Today, with available technology, it is possible to screen through financial statements of all listed companies at the click of a button on any given day. Scientific Alpha, on the other hand, is an investment engine that can review the entire investment universe at the click of a button and zero-in on the pockets of inefficiency in the market.
Manish Joshi of NewsBarons provides excerpts of an interaction with Dr. Vikas Gupta, CEO and Chief investment Strategist of OmniScience Capital Advisors Private Limited who states ‘We have brought Graham-Buffett value investing to the 21st century world of data and analytical prowess’.
NB: There are about 100s of fund managers in India and more than 10000 globally. Why do you think there is need for one more?
Dr. Gupta: While there are a lot of fund managers in the World, majority of them are chasing mirages, i.e. impossible goals focused on returns they wish to generate and that too in the near-term. What is needed by investors is a fund manager who is focused, first, on preserving capital and second, on growing capital at the highest rate, in the long term, without compromising on capital preservation. This is encrypted in our mission statement: Kill Risk, Create Alpha.
OmniScience was founded with a vision of creating and promoting a fund management culture which celebrates investing with safety of capital as the goal. Intriguingly, historical analysis shows that such strategies end up delivering the highest returns in the long run.
NB: What is unique about Scientific Alpha?
Dr. Gupta: Scientific Alpha is the culmination of decades of efforts to develop the first principles of investing. I started working on developing the investment principles in the 90s and implementing those principles in the early 2000s. Over time it morphed into a structured value investing methodology which is termed Scientific Alpha.
Scientific Alpha stands on the shoulders of giants. The philosophical foundations of Scientific Alpha are based on a risk-averse mindset and the principles of value investing as formulated by Benjamin Graham and developed further by his protégé Warren Buffett. The typical investment process known as the Buffett way of investing was developed more than 50 years ago during a time when companies had to be researched manually going through their balance sheets and other financial statements one by one.
NB: Is Scientific Alpha a “Buffett in a Box”?
Dr. Gupta: It is unlikely that any “Box” or “Investment Engine” can replicate Buffett, who is an investment genius. But IBM’s “Deep Blue” beat Garry Kasparov in 1997 itself. 20 years later in 2017, Google’s “DeepMind” beat World Go Champion KeJie. What this shows is that even though, a Box cannot replicate a person fully, it can replicate specific well-defined portions of expertise, however complex, targeted towards a specific task.
Scientific Alpha does work on the first principles of investing similar to those formulated and developed by Graham and Buffett. But, imagine if Buffett could go through all the listed companies on any given day and tell you which companies were consistent with his “moats at a discount” philosophy? Well, having Scientific Alpha is similar to that.
NB: Your portfolios look very different from other fund managers in India who claim to follow Buffett-style value investing. Why is that so?
Dr. Gupta: Many fund managers have learnt the Warren Buffett way. It seems very easy to people to identify what Buffett calls a “Great company”. However, the concept of Great Company is mostly in the eye of the beholder. Even if they do identify a “Great company”, they forget that Buffett buys them at a discount to their intrinsic value.
Scientific Alpha picks “SuperNormal Companies” at “SuperNormal Prices”. Since most of the fund managers are buying the Great Companies which everyone else knows about, they are typically overpriced.
No surprise, that our portfolio of yet-to-be-identified companies looks very different from the popular companies in their portfolios.
NB: The OmniScience team had been ranked #1 by Preqin, the largest hedge fund intelligence firm, for the year 2014. Do you think you will repeat that at OmniScience?
Dr. Gupta: Our focus is not to chase rankings and awards but to focus on our fiduciary duty to provide the best portfolio to our clients consistent with their investment goals and risk profiles. But, we wouldn’t be surprised if our quest for the Super Normal Portfolios could lead to Super Normal returns.
[Dr. Vikas Gupta is the inventor and architect of Scientific Alpha and has been investigating various investment methodologies for over 2 decades. In his previous capacity as the CXO of Arthveda Capital, his strategy was ranked #1 long-bias equity strategy from 11000+ hedge funds across the world by Preqin.
A B.Tech from IIT, Bombay and Master’s and Doctorate from Columbia University, New York, Dr. Gupta has also formerly served as Professor and Research faculty at IIT Kharagpur and University of California, Irvine.]