“We like to see how well analysts do with estimating dividends, against how we do,” Hamm says. “Either they don’t care or they’re no good at it, but their error rate is significantly higher than ours. And if we can reduce the error rate in our predictions, then obviously we’re going to have a much better result.”
According to Hamm, Bristol Gate outperforms fundamental analysts by a factor of at least 1.5, and as high as 2.5. The combination of machine learning and big data is able to replace and outperform the equivalent of thousands of analysts with minimal error/risk and high dividend growth.
“What’s fascinating to us is the market always has a dominant momentum-driven factor, whether it’s the One-Decision stocks or the Nifty 50 or the FANGs,” Hamm says. “That drives a lot of the index return, which is why indexes are so misrepresented, and this is why we don’t believe in index fund investing because they’re filled with all the risk.”
The Bottom Line
We now live in the era of postmodern technology, and it’s changing how we interact with each other on a business-to-client, as well as a business-to-business, basis. AI has the potential to simplify the front, middle, and back office of every wealth-management firm. After applying the machine learning algorithms, the smartest choices are made by using our most powerful tool, the human brain. Machines won’t replace humans; instead, they will empower us to achieve greater goals.
Richard Hamm started his investment career in the 1970s. For more than 40 years he has actively participated in creating successful businesses, and has identified dividend growth as the best discipline to run a business. In 2006, he founded Bristol Gate Capital Partners, a firm dedicated to putting the scientific method up front in the investment process.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, a fintech engineering company. Vasyl is also the author of WealthTech Club, which conducts research into Fortune 500 and startup robo-advisor and wealth management companies in terms of the technology ecosystem.