Back in the 1990s, it was a tough business looking for value stocks. In today's blistered markets, it's a suddenly popular business.
One firm taking the value approach is Jurika & Voyles in Oakland, Ca., an institutional investor with $2.4 billion under management. The head of the five-person equity trading desk is Tony Ives, a pro who took a circuitous route to the buyside because of a family tragedy. The firm, founded in 1983, serves the institutional retirement plan market, endowments and wealthy individuals.
The firm tries to use the principles of Warren Buffett. The objective is companies with low forward P/E ratios, sustainable future earnings growth rates, strong balance sheets and high free cash flows. While the value approach may sometimes be sidestepped, Jurika believes that value will be successful over the long term.
Ives started his buyside career in circumstances that were difficult. His brother was in an accident which put him into a coma for ten years. "I moved to Sacramento because of my brother," Ives said. In the early 1990s, he took a job in the Sacramento City Treasurer's office. "It was a great learning experience," Ives said. (Earlier, he earned an MBA in finance and then found a job in 1984 with Merrill Lynch, where he started to build his book. )
The position at Sacramento was an excellent launching pad for his next move: trading for the California Public Employees' Retirement System (CALPERS). "At CALPERS, we could take huge positions in companies," he said. "After all, we had over $40 billion under management."
As a governmental organization, CALPERS struck some observers as inefficient and bureaucratic. "The trading was very paper intensive," Ives said. "But when you are managing huge amounts of money, you can't do this. Automation is the way to do this."
A major part of Ives' role was to put together an RFP, or request for proposal, for building CALPERS technology infrastructure. "The RFP process is grueling for government," Ives said. "We saw nearly every type of technology. I also did quite a bit of traveling over a few years."
When his brother died, Ives wanted to leave Sacramento and find a new career. He moved to San Francisco and worked for Jurika & Voyles. The firm was impressed by Ives' background in technology. At the time, Jurika was another paper-intensive operation. Today, Jurika has a sophisticated automation infrastructure.
Aside from automation, Ives has been helpful in changing investment strategy. Ives believes that technical analysis is a valuable tool for investing. While he believes fundamental analysis is critical, a stock nonetheless needs a catalyst. "Looking at charts can help me find those stocks ready to move," Ives said. Consequently, Jurika has recently begun using technical analysis.
"I like to look at short term indicators to confirm buy or sell signals," Ives said. "The Directional Moving Indicator and MACD [Moving Average Convergence/Divergence] tend to work well with each other. I also look at the one year and five year charts with 10, 50 and 200 day (or week) moving indicators to get a feel for support and resistance levels."
Unlike some buyside firms, the traders at Jurika are much more than order takers. Traders and portfolio managers have weekly meetings to review portfolios on a long-term and short-term basis. "Traders have lots of autonomy at the firm," Ives said. "This was a big attraction for me in joining."
On a separate note, Ives thinks the move towards decimalization was a mistake. "It has made my job much harder," he said. "I do not see market makers as competition, but as an important part of my business. But if they do not make money in the trades, they cannot commit to a stock."
As for best execution, Ives believes it ultimately means having good relationships with brokers and market makers. "It also helps that we focus on the West Coast," Ives said. "It is a small community and we know where to go for a trade."
How does Ives view the market of the next few years? "We've had a long boom," he said. "Now, we have seen the bust phase. From my viewpoint, it takes time for investors to warm up again. The days of paying $500,000 for a trader just out of school is gone for the time being. It's now back to the fundamentals, which definitely is good news for a value fund like ours."
