Tool keeps users on trail of success

Star Tribune (Minneapolis) (MCT) - One day in 2003, at age 60, one-time Cray Research executive Terry Sullivan found himself out of work, out of town and unwilling to do another on-the-road corporate stint.

Sullivan, a company turnaround expert, was financially comfortable, but still wanted to work. However, he was done with working for the Man.

He and Peter Gregory, 74, a former Cray and IBM computer scientist who had tinkered with stock market-related programming, had talked for years about a program-based money-management tool that could take the emotion and guessing out of investing. They are assisted by adviser Bob Rudell, 60, who spent 30 years in the brokerage and investment business.

Five years and $2 million later, the trio has launched Bloodhoundsystem.com, a software program that about 40 financial planners and money managers have acquired since the partners quietly unleashed Bloodhound in November at $1,000 for a year's subscription.

A lot of young guys go into the investment industry when they are in their 20s, all full of vim and vigor. These are battle-dinged veterans of several industries who started tinkering with an idea and some software because they thought there might be a better way of predicting the future through a sure-fire knowledge of the past. Think of them as the world-wise "Space Cowboys" of investing, like those astronauts from Clint Eastwood's 2000 movie who were sent on a mission in their 60s.

"If I had known back in 2003, when we incorporated ... I wouldn't have done it," Sullivan said. "It took five years and four iterations of the product before we were satisfied that it worked. We determined that the brokerages and self-directed investors and money managers didn't have anything like this. And now this is fun."

Bloodhound isn't making any money yet, but the founders like what they have heard from several dozen users over several months of testing.

"I spent 30 years in the investment industry before I retired in 2002, and this is a very unique tool for portfolio construction," said Rudell, one of 27 investors and a board member who helped build what is now Ameriprise Financial's 401(k) business in the 1980s and 1990s. "We're going to sell this through (low-cost) 'viral marketing.' We're going to educate buyers and investors on what this does and why it is needed."

Gregory is the technical master behind the Bloodhound program that has collected the historical performance of all stocks and historical market behavior going back generations. A British-born mathematician who lives much of the year in Naples, Fla., Gregory started out as a rocket scientist.

"Essentially, Bloodhound is your financial adviser who takes into consideration all known information every day and tells you what you should do given your strategy," Gregory said.

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He's run thousands of "back-testing" exercises on the system to confirm Bloodhound's prediction for a certain basket of stocks. The system recommends what to buy, when to buy, when to sell and can combine fundamental and technical analysis.

Edina, Minn.-based Bloodhound is a "virtual" company that exists between Sullivan's office, Gregory's skunkworks in Florida and a couple of programmers in New Jersey.

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"A lot of places run analysis through a black box and put a rating on a stock," said Al Lietz, a former executive with Charles Schwab who now works for Vector Wealth Management of Minneapolis and who is an investor in Bloodhound. "This is not for novices. But this allows the user to control the black box by testing assumptions or just using a prepared portfolio that they offer. And you can test to yesterday. It's that's powerful. I have not seen anything with that much ability to steer the ship."

Tim Lankford, a former brokerage executive with Bankers Trust Brokerage in Chicago, took a sniff of the Bloodhound service during an early-stage demonstration at Morningstar a couple of years ago. Lankford invested in the company.

"I took Terry to hedge funds, money managers in Chicago, and everyone said, 'Wow!'" Lankford said. "I didn't find anybody who drilled down and found something wrong with it."

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Bloodhound is designed to take out the emotion that causes so many investors to plunge into stocks when the market is high and sell when the market is low. Bloodhound also back-tests each plan to demonstrate what the results would have been for more than 25 years. The Web site, once you or your financial adviser are members, lets the investor describe a desired annual return over so many years and then recommends the strategies to get there, right down to the basket of stocks.

The system is fairly simple to navigate. The owners have designed it for investors who want a basis for constructing their portfolios or want to test a portfolio against their investment strategy or a mutual fund against its investment strategy.

"Bloodhound differs from almost every other system in the market by focusing on strategies and portfolios rather than the analysis of individual stocks," Gregory said. "Stocks are its output, not its input."

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© 2008, Star Tribune (Minneapolis)