Why you should care
Because sometimes the liberal arts kids come out on top.
In the world of investing, there is, on one side of the spectrum, Warren Buffett. The Coca-Cola-loving Oracle of Omaha epitomizes a human approach, one that makes judgments based on deep investigation and some intuition. On the other side there is artificial intelligence, machine learning — basically, robots — with no pretense to intuition or intimacy. The robots don’t need Coke.
What if you combined the best of both?
Meet Michael Seckler, co-founder, with John Alberg, of Euclidean Technologies. Yes, it’s named for the Greek mathematician, and it aims to strike a balance between futurism and conservatism, of nuts-and-bolts and cutting-edge tech. The firm applies tools used by companies like Google and Netflix to mine data, and while machine-learning is a nice buzzword, it’s working out well for Euclidean: The firm sits on $110 million in assets and has managed to rake in 9 percent in annualized returns after fees since the company was founded in 2008 — well above the 2.9 percent average return for hedge funds during that time, according to industry tracker HFR.
Seckler is driven by long-term value, and his firm can fall in love with the stock market’s ugliest ducklings.
At a time when everyone is tech-happy on the Street and computers justify occasionally reckless decisions, the duo doesn’t run tech wild — they’ve trained the computer to choose companies more thoughtfully than most of their peers would allow. While other hedge funds rush to trade on the hint of a rumor, or the latest CNBC reports, Seckler is driven by long-term value, and his firm can fall in love with the stock market’s ugliest ducklings. The strategy is called fundamental investing — distinct from just looking at data, stock prices, sales and revenue, says Larry Tabb, founder and CEO of the financial markets research firm Tabb Group. It’s about looking at indicators that “are not that easy to quantify,” he said. Investors who follow this approach have to know their companies intimately.
OZY caught up with lanky, silver-haired financier Seckler, 43, in his office, where a custom-painted portrait of Euclid hangs, along with imagistic representations of the man’s theories. Neither he nor Alberg majored in finance or logged time at banks or hedge funds. Instead, they met at Williams College, where Seckler double majored in geology and history. What hooked them on their current path was very liberal-artsy: an “incredibly thought-provoking course” from William Wooters, a founder of quantum information theory (a mysterious field that covers everything from blackholes to teleportation). Rapt in the lecture hall, the young men found themselves in long debates about technology, the business happenings of Microsoft and IBM, and theories of competition.
At the time, the mid-’90s, it was clear to many that the Internet was poised to transform business in huge ways. Seckler was hired as a young research analyst at Mercer Management Consulting (now Oliver Wyman) just a year before Netscape’s enormous 1995 IPO. It was his job to put together detailed research reports on companies for the firm’s partners. Then, just a year into his professional life, at a college reunion over Fourth of July weekend, the 22-year-old Seckler found himself in another dorm-room conversation with Alberg. Netscape was on everyone’s tongues; on the drive back to Boston, three hours in the pouring rain, Seckler and Alberg couldn’t let it drop.
Soon, they hashed out the beginnings of what would become a multimillion-dollar tech company, an HR software firm called Employease. They quit their jobs eight months later and began working 100-hour weeks, “eating ramen and drinking cheap bourbon,” Seckler said. They raised their seed angel round in 1996. The duo grew their company for an impressive 36 consecutive quarters — that’s nonstop growth for nine years — and convinced Bill Gurley, now a major investor in Uber, to come on board as an investor. Eventually the pair sold the company for $160 million and became millionaires in their 30s, but not before the dot-com bubble forced them to cull staff from 130 to 80 and slash spending. “In ’99 we all thought we were on top of the world,” Seckler said. The year 2000 sobered them up.
Seckler’s new empire has treated him well; but some ugly ducklings never turn to swans, and therefore, its roster does require culling: Earlier this year, for instance, the firm dumped Coach. Seckler’s business faces other challenges too. The use of artificial intelligence to invest on humans’ behalf has regulators and lawmakers concerned. And then, within the industry, some wonder whether machine-learning methods are overhyped. Michael Kearns, a professor at the University of Pennsylvania who has run quantitative trading teams on Wall Street, says “suddenly every hedge fund in the world has a bee in their bonnet about machine-learning,” claiming it’s their “secret sauce.” Kearns is wary of hedge funds that might replace the human element with computers all too quickly.
Seckler claims no such intentions. Indeed, the firm’s long-term strategy prevents it from getting sucked into a wave of high-risk trading. They’re not in the Wall Street “arms race,” he says. “We’re interested in how can we use history’s best lessons.”