I started in the investment industry in January of 1992. I was trained the same as every other investment advisor, that “Buy and Hold” or “Asset Allocation” is the only way to invest money properly. It didn’t take long to realize that a market downturn could quickly steal 25% or more of a client’s portfolio. It didn’t feel right telling someone that they didn’t need the money now and that over time they would come out just fine. That explanation never seemed to make people feel better.
I found that asset allocation was based on a system called “Modern Portfolio Theory”. This theory says that if gas prices go up, then so will gas stocks since the gas companies become more profitable. At the same time, transportation stocks will go down, because their largest cost (fuel) is going up. If your portfolio has both these positions, then it goes in the middle. Over time everything goes up, but your portfolio has less volatility along the way.
Modern Portfolio Theory made complete sense to me because it works according to economics. What shocked me was to find that the large investment firms seemed to water down this model. Instead of having Oil stocks and Transportation stocks, they instead use Growth stocks and Value stocks. Unfortunately growth and value don’t have the same relationship as gas and transportation. If the market goes DOWN, both growth AND value stocks go DOWN!
I also was shocked to find that the asset allocations were based off 20 year or more time frames. This means that the client needs to plan on staying in this allocation for 20 years or more in order to get the results that are expected. I haven’t found ANY clients that want to stay in an investment for 20 years or more!
I started exploring other ways to invest that made more sense. I found that the market tended to move in cycles or waves. For example Presidential elections cause a 4 year cycle. Tax season creates a type of annual cycle. Nature works in cycles as well. Light travels in cycles, electricity travels in cycles, even waves and the tide move in cycles. It seems that most things in nature are cyclic. It only makes sense that the market would have a cyclic movement also.
I started working with cycles and waves in 2000 and have avoided major market downturns due to this approach. Since then I have designed and implemented computer models that help me determine what cycles are dominant and where we are currently in each cycle. When it appears the market has crested the top of a cycle and is beginning the descent down the other side, we go to the safety of cash. This prevents the loss of principle in the portfolio. If we avoid the loss of principle in down markets then we reach new portfolio highs much quicker during the next up market.
I have implemented multiple systems into each portfolio. The varying systems offer client’s diversification without sacrificing return. Each system determines where we are in the cycle and then determines which investment option provides the greatest potential return with the least amount of risk.
If your tired of the same response “You’re in it for the long haul” and would like an investment approach designed to keep you out of the major market downturns without giving up the potential associated with large market upturns, then you should explore our systems further.
