As even casual observers have noticed, Wall Street is a more volatile arena than ever. Both the indexes and prices of individual stocks gyrate like never before, says David Leinweber, chief executive and founder of the Pasadena-based Codexa Inc. stock market information service. Most probably, over-caffeinated day traders are the culprits; that and an Internet that keeps all investors incredibly well informed, by historical standards.
“Information is free and instantly available to millions of traders, which used to cost plenty and could be had only in days or weeks,” says Leinweber.
Trading volumes, prices, stock message boards (chat rooms), SEC filings, analyst calls, lawsuits, federal economic releases, news articles, insider trading information and much more is floating out there in cyberspace. Too much, in fact, says Leinweber.
“If a trader really wanted to follow everything about a stock, he would spend all day on the Web, or he would need a staff of dozens,” he says.
Accordingly, Web-induced information overload has become Leinweber’s latest schtick. Rather than worrying about volatility and information, his Codexa is selling online-available software to professional money managers (rented at $1,000 a month) which sifts through the Internet, looking for data or information on specific stocks. Computer-enhanced artificial intelligence will be used to interpret some information, customized for the end-user.
When information really crucial about a stock is posted on the Web, the software will “put up a red flag” for the user, usually in the form of a beep or onscreen flashing light at the user’s personal computer. The plan is to help traders anticipate and profit by volatility, not get whipsawed by it. If an event is going to trigger selling, but a stock is regarded as fundamentally sound, then that is probably a good time to buy.
Leinweber knows of what he speaks when he talks about trader needs. He quit a job as money manager with Pasadena-based First Quadrant LP last March (where he managed $5 billion) to launch Codexa. Before that, he earned a Ph.D. in applied math and computer science from Harvard and worked for seven years at Santa Monica-based Rand Corp. on the use of artificial intelligence.
Refreshingly, Leinweber doesn’t promise huge returns to those who use his online service, but only some improvements (which will vary, of course) on their current returns.
“I am selling to people who already know what they are doing. It’s about helping them time their trading,” says Leinweber.
Trillion-Dollar Dinner
Jamie Montgomery, top dog at the Santa Monica-based Digital Coast Partners venture shop, was musing about the sums of money under management by attendees slated to show up at his Nov. 9 fundraiser at Santa Monica’s Museum of Flying.
“Well, let’s see. We have Capital Group Cos.,” he said, referring to the downtown Los Angeles-based holding company for Capital Research & Management and Capital Guardian institutional money managers.
They run more than $500 billion now, according to spokesman Chuck Freadhoff. Toss in SunAmerica Corp.; the local office of Donaldson, Lufkin & Jenrette; Goldman Sachs & Co.; and most venture capitalists in town, and the amount of cash represented at Montgomery’s soiree easily eclipses $1 trillion. Fun parlor talk, to be sure, but Montgomery’s dinner also points up the growth of the nation’s financial markets in the last two decades and Los Angeles’ prominence in managing money, probably second in the nation only to New York.
As recently as the early 1980s, Capital Group had well under $20 billion under management, while the real venture shops in town could be counted on one hand. And downtown money manager Payden & Rygel, launched by Joan Payden in 1983 (it seems like yesterday), now manages nearly $40 billion.
The venture scene has ballooned, too.
Frank Kline, venture capitalist and founder of Kline Hawkes & Co. in West Los Angeles, said last week of his beginnings in the venture game in the early 1980s, “When I started, it was almost collegial, funding a company here. You would put in a million, I would put in a million, then we would talk everyday about how our investment was doing. Everybody knew everybody.”
Now Kline manages nearly $500 million.
Will it last? Will all things related to Wall Street continue to grow?
“I think it will,” says Kline. “There have been bear markets before, and I remember in 1982, 1983, 1984, it was tough in venture capital. It dipped, but it came back.”
State and private pension funds, once totally in bonds, now allocate more and more of their capital to the stock market and to “alternative investments,” such as venture capital, noted Kline.
Short Takes
Speaking of Capital Group, it was something of a surprise to see an old Capital Research money manager, Barry Richards, show up in a recent edition of Barron’s and announce he is long only on three stocks. (Happily, Los Angeles-based Hughes Electronics Corp. is one of them.) Richards is in cash or short on the rest of the market, including specifically Burbank-based The Walt Disney Co. Richards, now in semi-retirement in Maine, worked at giant Cap Research for 12 years, before spending a few more years at the hush-hush PrimeCap money management outfit in Pasadena.
Neither shop will comment on Richards’ conversion to the bear camp. Richards called Disney a fine company, but in businesses that are either mature (theme parks), unstable (movies), or just bad (retail stores)… You could call Nicholas Stonnington a stockbroker, but that’s like saying Babe Ruth was a baseball player. Stonnington, 42, with the Merrill Lynch Private Client Group in downtown L.A., has $1.35 billion under management, more than many money managers in town. He got his real start by calling law firms that had a retirement plan and then talking to the firm’s administrator and setting up a meeting… Frank Eppinger, 10-year veteran and assistant manager at the Century City PaineWebber retail stock brokerage, left last week to join Smith Barney in downtown Los Angeles, a move that was said to “shock” the troops at PaineWebber. Bidding wars for brokerage talent continue throughout Southern California.
Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].
