Q&A With John Reese

It is no secret that I think stock screening can be an asset to both investors and traders who seek to outperform the market. For well over the past decade, Mr. Reese has dedicated his career to the extensive use, research and development of stock screens based on the strategies of legendary investors like Ben Graham & Warren Buffett.

For those unfamiliar with John's work, he is best known for being the founder of stock-screening website Validea.com. John is also the author of "The Guru Investor: How to Beat the Market Using History's Best Investment Strategies" and a regular columnist for RealMoney.com, Forbes.com and MSN's Strategy Lab. John also maintains the investing blog The Guru Investor which you will find among the blogs I read.

We will cover a wide variety of topics in this Q&A and we hope you find it as helpful and enjoyable as we have in preparing it for you!

Q&A With John Reese

Kirk:  Hi John. Welcome to the Q&A! We are excited to have you here so we can learn more about you and your perspectives and approach.

John Reese:  Thank you Charles. I'm also very excited to be speaking with you and I appreciate you putting this together. I hope I can offer up some valuable thoughts and insights from my investing experiences and research that your readers can learn a little bit from.

Kirk:  Let's start at the beginning. When and how did your interest in the market begin early on?

John Reese:  I first became interested in the stock market at the age of thirteen when I became curious, then fascinated, by reading each weekly issue of Value Line that my father subscribed to and then trying to figure out which combination of Value Line's ratings and screens would help pick the best stocks. Around that time, I also began playing the 3M bookshelf same "Stocks and Bonds" and became quite good at it, reinforcing my interest in stocks and investing.

Kirk:  How did those early experiences transition into a lifetime career?

John Reese:  When I went to MIT, my main interest was learning everything I could about technology and computers. As part of this interest, I joined the MIT Artificial Intelligence Laboratory, where I learned how to extract wisdom from books and incorporate that knowledge into smart computer programs. With the encouragement of one of my professors, J. Licklider, I began to think about how I might make a smart computer program to pick stocks. However, that was perhaps one of ten diverse projects that I was seriously spending time on (the others ranging from non-drug treatment of migraine headaches, to the first microprocessor-controlled system for office building HVAC systems to save energy and money, to electronic speech recognition, to a computer controlled windrower that could automatically harvest rows of grains without being ridden by a human.) I actually brought several of these projects to fruition, but the program for picking stocks ended up on my incubation list, where it was to lay dormant for many years.

After graduation, I went on to a career in engineering and business, getting my MBA at the Harvard Business School and working in the telecommunications and personal computer industries. I eventually founded a business focused on computer networking. It was the sale of this company many years later that retriggered my interest in the stock market - trying to figure out how to invest the cash that I received from the sale of my company. I had read many investing books, but it wasn't until I read Peter Lynch's One Up on Wall Street that I had an "aha!" moment. Here was someone with 1) a proven track record, who 2) in his book had publicly disclosed the stock-picking strategy that made him successful, and who 3) had a strategy with a substantial, clearly described quantitative portion. I thought that I could extract the wisdom from his book, and create a computer program to analyze any stock of my choice and tell me whether Peter Lynch would have a strong interest in it -- and why or why not.

This approach proved to be extremely successful and time efficient. I went on to identify more than a dozen investing legends (after reading hundreds of investing books and research papers) whose works met the three criteria I just mentioned. Then I implemented Artificial Intelligence "knowledge bases" for each one -- that is, I created computer models that evaluated stocks using each approach. So, by entering just the ticker symbol of a stock that caught my attention, I could almost instantly get the opinion of twelve investing legends on the stock.

This development happened near the beginning of the Internet era, and, with my handpicked team, I went on to offer access to these models on the Internet at Validea.com.

The extensive investing research that I had done, plus the excellent track records of stock portfolios picked by each of my AI gurus, resulted in quite a few individuals asking me to manage their money. I thus created Validea Capital Management, which, along with Validea.com, became my full-time passion and my new career.

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