Our exploration of the use of modern data analytics to enhance investment results continues this week with two of the leading providers of tools for portfolio managers.  My guests on today’s show are Clare Flynn Levy and Cameron Hight, both former investment managers who became entrepreneurs seeking to improve outcomes for other managers. Clare is the founder and CEO of Essentia Analytics, a behavioral data analytics service that enables fund managers to capture rich data about their own behavior and its context. Essentia analyzes trading history to help managers overcome common behavioral biases and optimize their trade entry and exit on positions.  Cameron is the Founder and CEO of Alpha Theory, a fintech company that helps investment managers optimize their position sizing process.  By creating a disciplined, real-time process based on a decision algorithm with roots in actuarial science, physics, and poker, Alpha Theory takes the guessing out of position sizing and allows managers to focus on what they do best - picking stocks.  Our conversations cover the founding of their respective businesses, the mistakes portfolio managers commonly make, the tools they employ to help managers improve, and the challenges they face in broader adoption of these modern tools.  The good news is the clients of Essentia and Alpha Theory have demonstrated improvement in their results after employing these techniques.  If you ask Clare and Cameron, you may come a whole new appreciation about the potential for active management going forward.  You can learn more about these two innovative companies at essentia-analytics.com and alphatheory.com.   Learn More Join Ted's mailing list at CapitalAllocatorsPodcast.com Write a review on iTunes Follow Ted on twitter at @tseides For more episodes go to CapitalAllocatorsPodcast.com/Podcast   Show Notes Clare (2:26) 2:29 – Clare’s path to founding Essentia  5:42 – What makes data science of investing revolutionary in the past five years  6:25 – The pitch for Essentia’s tools  7:57 – How do you use data to get into the behaviors that work and the ones that don’t             8:06 – Michael Mauboussin podcast episode             8:10 – Annie Duke podcast episode  11:03 – Specific tenants of behavioral finance  12:39 – Parts of the portfolio process that they explore  14:20 – How do you actually convince people to change behavior  16:17 – The nudges built into the system  21:26 – How much data is needed to be able to help improve performance  22:16 – Most interesting data set that a portfolio manager has tried to get to improve their performance  24:21 – Is there consistency in people’s patterns  27:08 -  The hardest part of convincing someone to become a client  29:16 – What other places does Essentia plan on expanding  30:42 – Given all of the data that Clare has seen, what’s her outlook on active management 32:39 - Closing questions for Clare  Cameron (37:58) 38:02 – Cameron’s background and the founding of Alpha Theory  38:35 – What problems does Alpha Theory looks to solve             38:49 – Psychology of Intelligence Analysis (Richard Shure)  40:13 – The mistakes he sees portfolio managers make  42:29 – What tool does Alpha theory is provide to portfolio managers  44:17 – What changes in the portfolio manager’s implementation  47:27 – What have been the outcomes when people implement Alpha Theory  51:58 -  Are there different firms or type of firms that are better at picking stocks  56:36 - The Concentration Manifesto  1:00:25 – How they calculate batting average of allocators 1:01:41 – Where else could this tool be applied 1:03:31 – What questions should allocators be asking of managers 1:05:09 – How much does the input of information impact the outcome 1:06:42 – What other research has Cameron been able to do based on this data 1:08:56 – Biggest challenge in running this business   1:11:23 – Closing questions for Cameron

Rick Selvala is the co-founder and CEO of Harvest Volatility, a ten-year old manager of a variety of volatility strategies that oversees $13 billion in assets. After starting his career in the Treasury department at General Motors in the mid 1980s, Rick has spent nearly three decades trading derivatives on the sell side and buy side. Rick has an uncanny ability to break down this complicated investment area and make it sound simple. Our conversation discusses the world of volatility, including intelligent uses of derivatives, overcoming headline risk, characteristics of successful traders, assessment of alpha, the current volatility environment, and strategies that capture returns.  His insights left me thinking twice about some of the assumptions my System 1 brain had formed about volatility. Time for System 2 to go to work. DONATE TO CYCLE FOR SURVIVAL, http://mskcc.convio.net/goto/ted. Learn More Join Ted's mailing list at CapitalAllocatorsPodcast.com Write a review on iTunes Follow Ted on twitter at @tseides For more episodes go to CapitalAllocatorsPodcast.com/Podcast   Show Notes DONATE TO CYCLE FOR SURVIVAL, http://mskcc.convio.net/goto/ted. 3:03 – Rick’s path to Harvest 5:17 – How should one think about volatility as an asset class 7:56 – Volatility as a path to enhance yield 11:07 – Is there a programmatic way to implement 12:55 – Volatility as a path for insurance 15:45 – Where do people go wrong with leverage 18:28 – What level of understanding of this space do clients really have 21:58 – How would someone express the idea that volatility is cheap in the market             22:04 – Bill Spitz podcast episode 24:24 – What strategies could managers take advantage of in a low volatility environment 26:01 – How does Rick asses if someone is a good trader 27:32 – How do you identify firms that are too bold 29:26 – Does the community have a good sense of whether traders are acting responsibly 30:08 – How do you determine if a manager is outperforming 32:11 – Is there a structural return from selling insurance to the market 34:13 – Have computer systems changed trading in the derivatives market 35:14 – Taking a look at the current environment 38:43 – Recent market turmoil 39:58 – Are quants impacting market volatility 41:26 – What’s next on the frontier for Harvest 45:02 – Closing questions