The investment philosophy at Hymas Investment Management is based on an appreciation for the mechanics of capital markets. It may be assumed that investments will be valued in the marketplace at approximately their fair price, reflecting all the news available and the analysis that is lavished on determining the relative value of investments. If the word "approximately" was replaced by "exactly", this would be a statement of the Efficient Market Hypothesis (Strong Form).
However, other factors are at work in the real world. One factor is friction. It does no good to an investor to know that a particular investment is a nickel cheap if his transaction costs are a dime.
Another factor of varying importance is liquidity. Liquidity is an important part of the investment process, and is often used in a qualitative sense to describe the ability of an investor to buy or sell instruments without affecting the market price. It may be possible to buy one hundred shares of a company without having any effect on the market price, but buying one million shares may require the investor to pay an increased price to entice holders to sell at the same time he wishes to buy.
The additional factor of great importance is taxation. If an investor requiring funds holds two instruments, both valued at a price he thinks is fair, and he is indifferent to which is sold from a pure investment standpoint, tax considerations will also come into play: all else being equal, the investment providing the better tax consequences (capital gains tax) will be the one that is sold.
Friction, liquidity, taxes: these are the often ignored elements of investment decision-making that are integral to the Hymas method of quantitative investing. While friction and taxes always work against the investor, their effect can and must be measured as precisely as possible, and these measurements incorporated into the decision making process.
Liquidity is the focus of the Hymas investment philosophy. Markets can move around significantly in the absence of a "real" change in the valuation of a security, as incoming orders are filled. To achieve superior long term gains on an investment portfolio, the key is to sell when others are buying and to buy when others are selling. To this end, Hymas Investment Management focuses its research efforts on the analysis of a market price into its "fair" and "liquidity" components, to achieve superior investment returns by "selling" liquidity to the market, taking advantage of mispricing while at all times keeping the client's tax and commission considerations in view.
Those interested in an academic study of the value of a philosophy focussing on "liquidity supply" may wish to consult Who Gains from Trade? Evidence from Taiwan, Barber, Lee, Liu & Odean.
Additional insights into the investment process at Hymas Investment Management can be obtained from the monthly reports of Malachite Aggressive Preferred Fund and the Daily Commentary