That we can beat the market in bull markets.
That we can avoid bear markets.
That the primary purpose of our investment process is to protect your portfolio from significant losses.
Our work is based on sophisticated pattern matching techniques honed by study, practice and experience.
We create structure and rules around our observations. The structure and rules drives our process.
We test and question everything. We seek always to improve and to simplify.
When the odds change, we act. This means we have a buy AND a sell discipline.
Complexity is the enemy of execution. We keep things simple, focused and structured. This way we greatly increase our own odds that when we are called upon to act we will.
We are not in the “predicting-the-future” business. We are in the PROBABILITY business.
Our Process involves:
THE FIRST RULE OF INVESTING: DON’T LOSE MONEY
When executed properly, our portfolios have a much better chance to outperform over time. As the magnitude of the loss increases, the required recovery gain exponentially increases (see chart above). Our process is designed to cut losses short so we don’t have to dig out of a disproportionately deeper hole than we jumped into. In fact, let’s just try to avoid the holes as best we can.
INVEST WITH THE ODDS (Have a Sell Discipline)
When the odds change we act. The toughest and most important thing we can do is to ACT when the odds change. When our indicators tell us the odds of losing money in the market exceed the odds of making money we must not invest. Of course the opposite is true as well and often buying after a Bear Market is just as difficult to do as selling is at the top of a Bull Market. However, it’s always most important to sell as losses have a greater negative impact than profits have a positive benefit. Remember this as you look at the Chart above: You have a long time to buy but only a short time to sell.
ASSET ROTATE (We Have A BUY Discipline Too)
Markets and asset classes trend for surprisingly long periods of time, often measured in months and years. Determine what’s working and stick with it until it stops working. The key is Asset Rotation – not Asset Allocation. Rotating to the strongest assets reduces risk.
APPLES TO APPLES
Keeping it simple, take a look again at the Invest With The Odds Chart above. If all you did was follow the instructions on those red and green lines using the S&P 500 this is what you’d end up with. We compare it to that old chestnut “Buy and Hold” the S&P 500 through that exact same time period. A picture paints $293,084 words and all that.
“The essence of investment management is the management of risk, not the management of returns.”
Risk is too often associated with volatility. The more an investment moves up and down the more risky it is deemed to be. What is risk for you?
We choose to define risk as follows: A permanent or catastrophic impairment of your capital.
The amateur investor asks: How much can I make? The professional investor asks: How much can I lose?
The answer to the second question is: All of it!