Firm’s “Timing Is Everything” Approach Leads to Spin-Off
- Friday, June 1, 2007, 12:00
- Special Features
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Garrett Capital’s philosophy is that when it comes to financial markets, timing is everything. The investment advisory firm licenses active management strategies of third-party managers for use in its clients’ accounts. The challenge is finding the right third-party managers.
As a proponent of active management, Garrett Capital adheres to the strategy that indicators, typically generated by mathematical models, can identify trends or changes in trends, and as a result can reduce risk and improve returns. To better identify active managers who successfully employed this strategy, in 1999 Garrett Capital began tracking timing signals, or the buy and sell recommendations of different third parties. What eventually resulted was TimerTrac, a spin-off company that is now completely separate from Garrett Capital, that tracks active signals for customers ranging from individual investors, to advisors to academics.
“In the case of TimerTrac, the company isn’t as interested in the securities that have been selected as in the timing of the actions,” says Dave Garrett, founder of Garrett Capital and principal in TimerTrac. “Subscribers can compare the decisions to different indices to see what decisions were made and how the decisions jived (or diverged) with a market at any given point.”
TimerTrac tracks 625 timing signals, or active manager strategies. Graphs pit a strategy’s performance against an index, and dots on the strategy line of a graph indicate where decisions were made. Users can click on the decision dots to see what decision was recommended. Because TimerTrac is more interested in the timing of decisions than in which assets were selected, a strategy can be compared to not only the index that the strategy applies to, but also other indices that an advisor might be interested in following.
The strategies are delayed for up to 30 days, so that the users of the service are not getting strategies for free, they are simply getting an independent analysis of how different strategies have performed.
“We are always having people ask us to forgive bad timings,” Garrett says, adding, “We forgive them but the chart won’t change.”
The TimerTrac service is SQL-server driven and all Microsoft-based, Garrett says. The company is in the process of converting to ASP.NET, he adds, but there hasn’t been much pressure to speed the conversion because, “if it ain’t broke don’t fix it.”
Although TimerTrac is completely separate from Garrett Capital, Garrett Capital is a user of it with the same access that other users have. In Garret Capital’s case, the company’s clients do not tend to sign up for the service independently.
“With our clients, they don’t want to have to do this – that’s why they hired us,” Garrett says.
However, individual investors who do their investing through the Web, have shown a lot of interest, he said, as have advisors.
In one case, Direxion Funds, (formerly Potomac funds) directs clients on its Web site to TimerTrac through a link that allows visitors to the Direxions site to view only the performance of Direxion Funds. Direxion Funds can be viewed against a variety of different indices, and with the other tools and choices of views that TimerTrac offers its regular customers.
The number of strategies tracked can change daily– in fact a news section of the site indicates which new strategies have been added and which have been discontinued. TimerTrac staff does research weekly to find new strategies to invite to be added to the service.
“The vast majority of strategies out there that our customers might be interested in we have found through our own research,” Garrett says. Users sometimes ask the service to look up and add a new strategy and TimerTrac invites the strategy to be tracked free of charge. About half accept the offer.
The company has also recently added a free broadcast email that includes short strategy summaries from several of the strategies followed. The thrice-weekly email generally includes between three and 10 summaries.
“I use it myself,” said Garrett. “I read the summaries, and then I look it up to see how they are doing. If they do well, I’ll pay closer attention.”
As for the future, in addition to a continual evolution to ASP.NET on the technology side, the company is also planning to add more statistics for users.
“We haven’t done it yet because for me, all I’m really interested in is the graph,” says Garrett. “I’ve been in the business a long time and I feel that’s all I want to know.” However, users have indicated certain other features they would like to see, and the company has begun exploring how to add some of those features.
Meanwhile for Garrett Capital, the service has lived up to its original intent, and Garrett Capital has found strategies through the service it has felt comfortable subscribing to for its clients. And while active management may be about being quick to act on shifts in the market, for Garrett, picking a strategy isn’t.
“I’ve learned you don’t jump quickly in this business. You don’t run away for one bad decision, and if you see someone you like, you move in slowly, maybe with 10 percent of a client’s portfolio and see how it goes,” he says.
