[ADVISOR VIEW] MauroForlin of GlobalLocalZA looks at how the human factor scores of a few prominent companies has changed from 2021 to 2022. Investments Finance
We at Global & Local Asset Management use the ‘Avoid the Human Factor’ strategy to manage our collective investment scheme portfolios. The strategy focusses on managing portfolios like an actuary and not a portfolio manager.The human factor is an actuarial-based portfolio tool, developed by New York-based asset manager New Age Alpha, aimed at mitigating the risk of human behaviour in stock picking.
The probability uses the only two things we know for sure about a listed company: that is the current share price and the profitability of a company as reported in its published financial results. From these two data inputs we can calculate the probability of the company not being able to produce the results implied in the share price based on whether the company has done this in the past 16 reporting periods.
The strategy comprises developing probabilities which indicate the chance of a listed company not being able to achieve the growth implied by its current share price. Remember, the probability reflects the ability of the company not being able to deliver the results implied in its share price, thus the lower the probability the better the chance that the company can deliver on the growth implied in the share price. The human factor scores of the listed companies we mentioned in the articles at the time of publishing were as follows:Netflix over the past few years has become part of many avid TV viewers’ lives.
From the above table we can see that Distell’s human factor score has gone from 31.4% to 61.4%. Which means that the probability of Distell being able to deliver the growth implied in its share price has decreased.Discovery started the year with the best human factor score of all the JSE-listed shares that New Age Alpha measures.
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