John Bogle Jr.
spends his days at work in the basement of his suburban Boston home with an eye on a favorite distraction: the market data that stream over the Internet and onto his computer screen all day long.
"I'm dying to get back and manage portfolios again," says Bogle, who had been doing just that before his sudden resignation as managing director at
in February. "I'm itching to get my hands back on some real live money."
Bogle, who had been out of sight since his exit from Numeric, resurfaced last month at the
Investment Company Institute's
annual meeting in Washington and announced plans to open his own quantitative investment shop in the fall.
Now he appears to have many of the pieces in place for the fall launch. We got an early look at how Bogle plans to sell his money-management products and alter the investment models he used at Numeric.
Bogle says it is "his objective" to have some kind of mutual fund up and running late this year. He will also run long-only and long-short small-cap quant offerings for institutional investors from the start. (Quant investors like Bogle use complex computer models to identify buy and sell signals.)
Our best guess: A Bogle mutual fund would be a version of the long-only small-cap strategy. He notes that most market-neutral mutual funds have performed poorly and have not attracted very much money. Quant models that try to exploit market inefficiencies tend to work more often with smaller stocks.
Another possibility: Bogle might become available to fund shareholders in other investment strategies as a subadviser. "We have no designs on setting up an enormous retail distribution network," he says.
Bogle, the son of
John Bogle Sr., has always seemed to attract investor attention beyond a scale his fund assets under management would suggest. Bogle began his career the week of the 1987 stock market crash at what is now known as
State Street Global Advisors
, later leaving to join colleague
to start Numeric.
Numeric manages $5.5 billion, but most of its assets under management are invested for institutional accounts. Mutual funds operated by Numeric under the N/I name were known to close when they reached relatively low asset thresholds, as little as $100 million in one case. Two funds, N/I
Micro Cap and
Growth, reopened for new business in April, two months after Bogle's departure.
Now Bogle has hired Keith Hartt, who had worked for Brad Lewis in the quant group at
, as his director of research. He's looking for one or two more people to manage client services, marketing and administration.
At the moment, Bogle and Hartt are literally writing quant programs that will drive their investments. What kind of electronic firepower does it take to produce a quant program? Bogle is working in his basement on a
workstation with dual Pentium III 500-megahertz chips and 512 megabytes of RAM.
Bogle stresses that his investment programs will differ from those shareholders got to know at Numeric Investors. "To the lay investor, they might look similar, exploiting some of the well-known market inefficiencies we exploited at Numeric. But to the more sophisticated investor who might look under the hood, I think they would see very meaningful differences."
For one, expect these models to hold on to stocks longer. Numeric funds often reported investment turnover ratios of 300% to 350% annually, a high level of buying and selling that had been criticized at times.
"We're not going to be so focused on tick-by-tick pricing," says Bogle, though he insists that this has nothing to do with criticism of Numeric portfolio turnover. He declines to estimate how much turnover to expect from his new models.
Another difference: These models will have a greater subjective, human touch. They are intended to analyze what bits of information are signaling that a stock should be bought or sold, then influencing the decisions with more qualitative measures. "We'll probably disagree with the quantitative signal on a relatively frequent basis," says Bogle.
For now, Bogle and Hartt continue to work out of their homes and prepare for the fall. "It's been nice to have the time off," says Bogle, "but I don't want this to go on indefinitely."
Syre & Bailey are taking July and August off. They'll return in September.
Steven Syre & Steve Bailey write for the Boston Globe. This column is exclusive to TheStreet.com. At time of publication, they held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy stocks or funds.