In this episode of Yet Another Value Podcast, host Andrew Walker speaks with David Kaiser, founder of Methodical Investments, a rules-based quantitative investment firm. David shares his journey from qualitative research to systematic value investing, explaining how structure, discipline, and data inform his approach. The conversation explores maintaining consistency amid evolving markets, the limits of AI, how to avoid pitfalls like melting ice cubes and governance traps, and why being different might still deliver alpha. They cover profitability screens, sector exposure, rule creation, and the timeless tension between sticking to principles and adapting to change.
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[00:00:00] Introduction and host's gym mishap
[00:03:40] David explains Methodical’s core model
[00:04:21] From qualitative to rule-based process
[00:06:13] Rules vs. adaptability tension
[00:09:46] Quality plus discount over pure cheap
[00:12:12] Profitability and portfolio construction
[00:14:18] Metrics used: net income adjusted
[00:16:14] Avoiding cyclicals and false cheapness
[00:18:13] Sector tilts: discretionary, energy, financials
[00:19:35] Competitive edge: consistency and patience
[00:20:25] Value investing's long underperformance
[00:22:09] Governance traps and data screens
[00:25:24] Backtest: profitable companies outperform
[00:26:26] Annual rebalance and risk control
[00:29:08] Quarterly profit reviews to exit losers
[00:31:06] Avoiding data errors and outliers
[00:34:28] Addressing off-balance sheet risks
[00:37:43] Building rules: testing, common sense
[00:40:06] Rule relevance and market evolution
[00:42:24] Sector constraints: no biotech, limit financials
[00:44:43] Avoiding melting ice cubes stocks
[00:48:26] AI as risk and potential edge
[00:51:26] Fringe alpha in a crowded field
[00:53:26] Backtesting across multiple market cycles
[00:55:11] Where to find David and Methodical
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Production and editing by The Podcast Consultant - https://thepodcastconsultant.com/
