INVESTMENT DISCOVERIES Embracing machine learning for value discovery While the prospect of machine learning might frighten some fundamental analysts, we want to embrace it. We’ve learned firsthand that machine learning doesn’t replace any portion of our investment process—and that, in our view, it can make us even better investors. As 2020 takes shape, we’re thinking about how we can use this technology to supplement our existing process during the new year. Craig Pieringer, CFA Portfolio Manager, Ever since 1988, our team has focused on finding value stocks that are Stageline Value Equity Team away from the crowd. In other words, we look for public companies that are typically underfollowed by the investment community and have current stock prices that we believe inaccurately reflect the companies’ true market values. Over the years, we’ve remained open to considering new and innovative quantitative tools that could prove helpful as we screen companies and analyze potential candidates for the portfolios we manage. In 2018, WFAM’s Investment Analytics team introduced us to new technology it’s been developing—a computer-aided stock selection process called CASPRTM. In Gustaf Little collaboration with the team, we began experimenting with CASPR, using it Associate Portfolio Manager, to sort through a universe of roughly 12,000 stocks in search of companies Stageline Value Equity Team consistent with our process for making investment decisions. Given that we enjoy discovering value where few investors are found and limit Using CASPR investments in top benchmark names, as a resource in we’re sometimes drawn to stocks identifying stocks that don’t screen well initially. Usually, that’s because their value may not be CASPR supports a portfolio immediately obvious. At first blush, the idea appealed to us that a machine manager (PM) team’s stock might be able to uncover value because selection capabilities by simulating this approach would remove human bias previous decisions that have from the investment process. been made in the portfolio through consideration of over 40 fundamental and quantitative Early in our work with CASPR, some factors. stocks it suggested seemed expensive to us. But when several of them kept reappearing in subsequent months, they CASPR doesn’t replace any piqued our interest. portion of a PM team’s investment process—its recommendations supplement their existing process. 15 2020