My full interview with David Burrows of Barometer Capital originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.
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.
David Burrow’s 21 Investing Lessons:
1) “What moves share prices? One factor of course is at the company level. But 80% of returns come from the impact of capital inflows — breadth expansion (more volume) — into an asset class. That’s when multiple expansion (higher prices) or re-valuation starts.”
2) “You can capitalize on multiple expansion in three areas. First, get to the right asset class. Second, find the right themes and sectors within that asset class. And third, find securities within that universe where companies are changing for the better.”
3) “My focus is on the 80% of the return that comes from getting into the right neighbourhood.”
4) “Capital flows are always moving, and so we move on to the next opportunity, too.”
5) “The big issue that investors succumb to is that they have a tendency to look at what has worked in their recent past, which is their recent experience, and then try to figure out how to make money in it again.”
6) “As you go through a down-cycle in the market, everything doesn’t start selling off on day one. The weaklings sell off in the beginning. But as the sell-off picks up steam, more securities are impacted, until late in the decline where almost nothing’s performing well in the market.”
7) “When the most aggressive folks start to re-allocate to that asset class, theme, or sector, they don’t want to buy ‘Moose Pasture Mines’; they want to buy the securities that they’re most confident in.”
8) “You don’t need to be first. You can wait until multiple expansion begins before you invest in that area.”
9) “I use something called point-and-figure price charts. They’re quantitative in nature. Higher highs and higher lows — that’s an uptrend, and lower highs and lower lows — that’s a downtrend.”
10) “There’s no bear market in history that happened while breadth was expanding.”
11) “I can go back to the 1950s and see that there’s no significant bull market that ever ended before 70 or 80% of stocks participated in an advance. In the NYSE, today, we’re sitting at only about 60% participation.”
12) “We believe ultimately the market gets it right. So forget about what you think should happen . . . No matter how smart you are, sooner or later you will get put in the ditch.”
13) “If the fundamental picture is doing this but the price behaviour is that, it’s not of interest. We want both — one confirming the other.”
14) “We are not ever looking for a ‘broken getting fixed’ security. We are looking for a ‘good getting better’ security.”
15) “When we start to see deterioration in breadth, or volume, whether or not the fundamental data’s still great, it’s time for us to start to reduce our weight.”
16) “We run stops on all of our positions. If something stops working, and it hits our stock, we’re gone.”
17) “In a bull market, investors say, ‘Earnings are growing at 6%, so how can the market be going up 15%? That’s irrational.’ Well, that’s multiple expansion. You want to stay in a position so long as the multiple grows and as long as the earnings grow.”
18) “Once you end up in a bull market, everyone’s scared because of the previous bear market; they want to take profits off the table as soon as things start to work.”
19) “In any transition there’s a period of higher volatility where the buyers and sellers battle it out until one side wins and you either transition higher or lower.”
20) “One should understand what is happening. Don’t try to justify what you think should happen.”
21) “Our job is to make sure we get the best inventory we could have, and the most important job of an inventory manager is to know when something isn’t attractive to mark it down.”
Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.