Interview
David Harding: The Future of Quantitative Investing
- Pivoting from Trend-Following Orthodoxy
- Harding rejects the "pioneer" label for trend-following, noting the strategy predates his work by 15 years, with roots in 1960s punch-card computing and 1972 launches by John Henry and Richard Campbell.
- A primary career driver was battling "trend deniers" who adhered to Eugene Fama's Efficient Market Theory, which asserted zero market autocorrelation.
- Harding notes a shift in public sentiment: after decades of denying trend existence, the narrative has swung to assuming the strategy is "obvious" and easily replicable.
- Deepening Historical Data Analysis
- The firm's research methodology is driven by a compulsion to extend back-testing horizons to better estimate statistical properties and validate strategy robustness against drawdowns.
- Historical tracking has expanded from early 1980s 10-year simulations to examining data sets extending as far back as 1919, mirroring industry benchmarks like the Barclay Equity and Gilt Study.
- This approach reinforces competence by demonstrating that current market volatility is not unprecedented compared to historical episodes (e.g., events eight years prior being more severe).
- Stance on AI and Machine Learning
- Harding defines current AI initiatives strictly as deep learning and multi-level neural networks.
- He remains skeptical due to the failure of the 1990s neural network wave, including major bank initiatives like a $25 million Citibank investment.
- While acknowledging new breakthroughs since 2014-2015 led by figures like Geoffrey Hinton, he estimates the current public debate is "nine parts hype to one part substance."
- The firm views its existing capability of translating inputs into intelligent investment outputs as a technology already in practice for 30 years.
- Organizational and Market Risk Management
- Harding identifies four conflicting constituencies that must be balanced: customers, staff, regulators, and shareholders, noting that their interests rarely align perfectly.
- The firm maintains very low leverage levels, adhering to Warren Buffett's principle of prudence when other market participants act recklessly.
- Investment philosophy prioritizes preparation for "unexpected" catastrophic events over probabilistic normal distribution models.
- Specific risk targets include "bulletproofing" the firm against overnight market drops of 35%, similar to the crash events of 1929 and 1987, while acknowledging the impossibility of insuring against existential threats like meteorites.
- Personal Resilience and Firm Trajectory
- Harding acknowledges the difficulty of founding Winton after exiting AHL, specifically citing a difficult initial month and the October 2002 drawdown.
- He reframes these negative experiences as essential for learning, stating that subsequent drawdowns were less severe, thereby validating the firm's long-term strategy.
- The firm operates on the conviction that mathematical and computational modeling has a distinct, non-controversial application to investment management, countering the "balkanization" between quantitative methods and efficient market theory.