Alpha Hunter Bags An Elephant Hidden in Plain Sight

By Doug Friedenberg

When you were very young, you probably had to solve those puzzles where you had to find various animals –elephants, lions, tigers, copulating monkeys — hidden in everyday drawings.  For those of you who had difficulty solving those puzzles, not to make you feel bad, but it’s happening to you again.

There happens to be an investment universe with a current estimated value of $5.5 trillion sitting here in the United States.  That’s a bigger universe than the British or Japanese stock market.  In fact, with the current global value of equity markets at $55 trillion or so, this particular investment universe shows up as being worth about 10% of the world’s equity market cap.

We wouldn’t even try to count the number of serious players in the various equity universes, although we’re convinced there are thousands.  This other investment universe of $5.5 trillion has, on a good day, the population of a very small town.  Like, there are more people at the typical hedge fund conference than there are serious consistent investors in this universe.  Try and imagine if there were $10 billion of market capitalization for each stock market investor to sort through before he bumped into another acquisitive investor, and you will begin to see the breadth of the field.

Hard to imagine, no?    But that’s not all.  In this universe, you will, no, must find virtually every new technology development way before your buddy twitters you about it.  Here, you can pick and choose your future.

We speak of Intellectual Property (which we suppose would seem an oxymoron to anti-science presidential candidates) and patents, which are beginning to be analyzed and traded in their own right.

Enter Michael Friedman, a Managing Director at Ocean Tomo and the Chief Investment Officer of their asset management division.  Michael was kind enough to give us a brief guided tour of his universe.  We say his because, sparsely populated as it is, it might as well be.

Ocean Tomo describes itself as the Intellectual Capital Merchant Banc Firm.   They provide valuation, advisory and execution capabilities in this marketplace, as well as maintaining their own portfolios.  The group have also launched a foundation,, whose mission is to improve life in less developed countries through well-considered technology transfer.

As Michael explained their business, we couldn’t help thinking about what the typical Wall Streeter will do if an inefficient market falls into his lap.  The old Drexel Burnham strategy in junk bonds came to mind.  Here, the strategy was to be prime mover in the market through inefficient price disclosure while making markets with wide price spreads, and it certainly allowed Drexel to make more money than you could count for a while, net of fines, penalties and jail terms.  We politely enquired about Ocean Tomo in this context, because it certainly seemed tempting.  Michael suggested that Ocean Tomo was moving in the opposite direction, towards fuller disclosure, better value disclosure, more information for investors.  Which only reminded us of one of our favorite Oscar Wilde quotes: “No good deed goes unpunished.”

Nonetheless, Ocean Tomo’s stance exemplifies (hopefully) an emerging view in the new internet marketplace wherein information enrichment of all can be reflexive to the point of origin.

We got to thinking about why an asset base so substantial should be so poorly followed by the baying analytical hounds of Wall Street.  Michael told us.  It’s structural, derived in large part from  inefficiencies in the analytical market place, like the fact that patents don’t show up on balance sheets.  It’s sort of the opposite of the toxic Enron off-balance sheet partnerships.  And they’re not so easy to value, or at least, not embryonically, since there’s the potential for multiple licenses.

Basically, you have to learn to see them as a wealth dimension that intersects the world you’re used to analyzing.  And that’s where Ocean Tomo is, creating the 3-D glasses and other necessary tools so that this universe becomes more visible, and better, more actionable for the investor class.

There’s a part two to this story.  Keep watching.

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