Investment Philosophy

There are many factors that go into how we select our investments and manage our portfolios. We start with a macro view and look at stock markets around the globe to determine the trend of each individual market. This is important in bull markets where the overall trend is up because we want to buy the dips and hold the rallies. In bear markets when the overall trend is down, we want to sell the rallies and hold cash. In sports terms we like to equate it with playing offense (bull market) and defense (bear market). In general we look at bull markets as beginning with a 20% move off a bottom, and bear markets beginning after a 20% downward move from a top. We also use Dow Theory and leading economic indicators for confirmation and clues as to the future macro direction.

We use fundamental analysis which concentrates on factors that determine a company’s value and expected future earnings. This strategy would encourage making investments that are undervalued or priced below their perceived value. Overall market valuation and corporate earnings growth are important to us. Studies have shown that markets with lower valuations tend to outperform markets with high valuations over time. Highly valued markets tend to be priced for perfection and more prone for a correction. In contrast, markets with lower valuations may be poised for a turnaround. This is the "buy low and sell high" concept.

We use technical analysis which attempts to predict an investment’s future market price and direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified, then a prediction can be made. The risk is that markets do not always follow patterns, and relying solely on this method may not take into account new patterns that emerge over time. We use technical analysis in conjunction with fundamental analysis to help us see resistance and support lines, and to help get a sense of the market’s potential movement.

We use modern portfolio theory which assumes that investors are generally risk averse. This means that given two portfolios that offer the same expected return, investors will prefer the less risky one measured by standard deviation. Thus, an investor will take on increased risk only if compensated by higher expected returns. Conversely, an investor who wants higher expected returns must accept more risk. The implication is that a rational investor will not invest in a portfolio if a second portfolio exists with a more favorable risk-expected return profile – i.e., if, for that level of risk, an alternative portfolio exists which has better expected returns. The goal is to construct a portfolio where the sum of the parts results in a portfolio with an optimized rate of return for the risk taken.

We provide a tactical overlay that increases or decreases our exposure to various different sectors based on the outlook for that area of the market. If we feel a certain geographic region or sector looks attractive to us, we will increase our position in that area while reducing areas where we have less optimism. These adjustments are made with the overall goal of remaining well diversified. This tactical allocation allows us to attempt to slowly move from fully valued areas to lower valued investments that we believe have more potential.