Investment Philosophy and Discipline

Summary: We believe most firms have it wrong. They may start off alright by developing an appropriate asset allocation plan and then selecting individual stocks and bonds, mutual funds, or managers for each asset class. So far, so good. But then they essentially buy & hold, maybe re-balancing a little each quarter back to their target allocation. This results in market-matching returns at best, in both good markets and bad. When markets are good, clients don’t mind, but when they’re bad (and markets do go down), they take their clients along for the ride incurring losses while they do nothing. They’ll say that you can’t have it both ways; that to be a long-term investor you just have to accept the ups and downs. We whole-heartedly disagree. Besides, most clients like you could do this much themselves by simply buying lower-cost index funds and holding on. We know that investors really want a strategy to capture the upside potential of the markets and to protect against significant losses. That is the strategy we follow, and we’ve built a non-emotional, disciplined method to do it.

Our Strategy Explained: Like the other firms, we do subscribe to the basic premise of asset allocation, global diversification, and risk management. We’ll get to know you, your goals and concerns, and develop a written asset allocation plan for you that includes a target % for each asset class. But we’ll also include a % range for each asset class. For example, you may have a target % for US Large Stocks of 30%, but your % range might be 20% - 35% or possibly as wide as 0% - 35%. The lower the minimum, the more we can sell for protection when the trend is down. We’ll build your portfolio with low-cost and tax-efficient index funds, one for each asset class in your asset allocation plan. Typically, a portfolio might hold 15 different index funds (Bonds, US Large Stocks, European Stocks, REITs, etc).

The key to our strategy, and what makes us unique, is that we actively manage the portfolio using trend-following strategies to determine whether each asset class is up-trending or down-trending. Trend-following is simply a systematic method to determine what a market is actually doing, going up or down. Our proprietary method uses what we call the Ryan Trend Indicator (RTI) which is based on factors like moving-averages and other technical indicators. The way we define a “trend”, the RTI has signaled a trend change usually every 4 to 18 months so we’re not trading that often – just capturing the overall trend. Trend-following differs from “market timing” in that we aren’t guessing about what the market is going to do. It differs from “value investing” in that we aren’t estimating that a holding is “under-valued” using some metric and, therefore, counting on the rest of the world to eventually wake up to this estimate and start buying this holding to push the price up. Actually, almost every other strategy out there is based on predictions and estimates. Our strategy, based on trend-following, simply acknowledges what markets are actually doing, and invests accordingly.

To summarize, we’re improving upon a buy & hold passive index strategy by diversifying globally, reducing costs by using index funds, being fully invested in a holding when its trend is actually going up (capturing growth) and selling or trimming back a holding when its trend is actually going down (providing protection). Once we have your asset allocation plan with targets and ranges in place, we spend most of our time watching our Ryan Trend Indicator for each of your holdings and trading accordingly, sometimes in spite of what “ought” to happen or what “gurus” are saying will happen. We’re not focused on making predictions and being “right”; we’re focused solely on your portfolio’s performance in both up and down markets.

By following our discipline, our portfolios will be well diversified, fully invested in rising markets, under-weighted in weak markets, capturing the available growth and avoiding major losses. And because your plan has been discussed with you in advance, and presented in writing, you will always know that your portfolio is invested according to the terms you’ve agreed to.

This is our approach and discipline. Few other investment management firms disclose so much. But we have no secrets and our savvy clients like to know what they can expect. Our approach is sound, it works, and it’s what we do.