Is that a bird? Is that a plane? No, that’s David Burrows in his helicopter, flying high in the sky, scouring for opportunities in the markets. David may not actually be in the sky, but he is not a bottom-up investor. Which means, in this case, that he doesn’t care as much about individual securities as he does about entire countries, markets, and sectors. At Barometer Capital, David and his team continuously scan and rank over 63,000 global securities in more than 41 industry sectors with their quantitative analytics machine. David mainly invests in ETFs (exchange-traded funds) based on where he identifies opportunities. Barometer Capital was co-founded by David Burrows in 2001, and today remains an independent partner-owned firm. The firm has $3 billion in assets under management. And David tells me during our interview that Barometer Capital’s equity strategy has earned on average 15% annually over 25 years.
David would fit in well with the Manhattan hedge fund manager crowd. He has a crew-cut, dresses very sharply, and talks as if he was top of his class at Toastmasters. He’s also a good teacher, using his MacBook to show me a set of macro charts to walk me through his investment model. I was intrigued by the “breadth model.” As David explained, expanding market breadth signals an increasing amount of investors, money, and volume, into the market. Logic dictates that the more potential investors that there are in the market, among other factors, the greater the upward pressure on prices. David follows shifts of capital into asset classes, then themes, then sectors, and then individual securities. Those shifts of capital cause that breadth expansion (more volume), which then triggers multiple expansion (higher prices). In other words, for David, the trend is his friend.
There was a pause in our interview when Greg Guichon, chairman of Barometer Capital, poked his head into the room and asked to talk privately with David. While I waited for David to return, I glanced outside the meeting room and into the open office and that’s when I grasped the ingenuity of the Barometer Capital floor space, which is a mini–trading floor. All 10 employees had dual monitors set up with Bloomberg on one screen and MS Office on the other. BNN was playing on a large TV screen hanging over the office space. The BNN host had started to talk about the continued slide in oil prices when David returned to the meeting room to continue our conversation.
Accumulation Distribution: an indicator that gauges supply and demand based on volume activity.
Breadth Expansion: when there are more buyers of stocks than sellers, or when there is an increase in volume activity in the market that influences stock prices (e.g., greater demand).
Capital: the capital in a business (financial assets, property, machinery, etc.) or the investible cash an investor has to make investments in the market.
Emerging Markets: less developed markets in non-G7 countries (e.g., Pakistan) that may or may not have the same standards of regulatory control.
Multiple Expansion: when prices of assets expand at a multiple of x, which may or may not be aligned to its internal rate of return or its earnings growth. Markets determine multiple (or price) expansion.
On-Balance Volume (OBV): an indicator that measures volume flow to predict stock price changes. Developed by Joseph Granville.
Point-and-figure chart: a chart composed of significant and non-significant price movements.
Stop-loss order: an automated order to sell a stock at a designated price below its purchase price. Used to limit downside risk should a stock decline.
Top-Down: a style of investing where an investor starts his or her selection process by analyzing markets, sectors, and industries, before (if at all) moving on to individual companies.
Volume: the amount of shares traded in a market in any given stock.