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 real world investors 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. We call it “Grow & Protect”.

Our Strategy Explained: Like 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 then we’ll develop a written, customized, asset allocation plan that is appropriate for your needs. Your allocation plan will be globally diversified with various asset classes depending on your needs. We’ll build your portfolio primarily with low-cost and tax-efficient index funds or exchange traded index funds (ETFs), one for each asset class in your asset allocation plan. Typically, a portfolio might hold 10 to 15 different and diversified index funds.

The key to our strategy, and what makes us unique, is that we actively manage each portfolio using a trend-following discipline. Trend-following is simply a systematic and disciplined method to determine whether an index fund is actually going up or down. We have developed our own set of rules for determining the trend, which is based on factors like moving-averages and other technical indicators.

Trend-following differs from “market timing” in that we aren’t guessing about what the market is going to do; we’re just determining what it is doing right now. It differs from “value investing” in that we aren’t estimating that a holding is “under-valued” using some metric and hoping that it will rise in value as others discover its value. Our strategy, based on trend-following, simply acknowledges what markets are actually doing, and invests accordingly.

To summarize, we manage money using active indexing strategies. We’re improving upon a buy & hold passive 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). 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. Join us!

Clients should understand that investing in any securities, including index mutual funds and exchange traded funds, involves a risk of loss of both income and principal that a client must be prepared to bear.