Our Risk-Management Process



“It is an old sea saying that no water except that in a well is secure from squalls, and thus it is a capital plan to keep your weather eye open all the time when afloat in a sailing craft.” Weather Wrinkles for Yatchman

The Trouble with Buy and Hold

Buy and Hold investing is a low-maintenance technique to get market returns from an investment portfolio.  The problem is the investor also gets all the market losses also.  Buy and Hold Portfolios are like driving a car without brakes. It works when markets are good but fails in turbulent markets.
Markets are Turbulent
Markets are more turbulent than many investors believe. This is one reason individual and professional investors under perform the market. Stocks are riskier than characterized by stockbrokers. The under statement of risk causes investors to over allocate capital to risky assets and causes a sub-optimal risk/reward ratio. We seek to maximize the risk-adjusted return on the portfolio.

The trouble with Buy and Hold, is you have to Sit and Take It and many investors can’t.

Being Less Wrong About the Future

We don’t believe the future can be accurately predicted but we do believe that it is possible to be less wrong about the future. It is possible to analyse the current market and macro environment and assign probabilities to future occurrences.   Much like a sailor who looks on the horizon can see the storm. See a storm doesn’t mean you will be hit by the storm, it means there is a good chance there will see heavy weather and now is the time to dog the hatches.

We try to implement this philosophy about the market. We keep a weather-eye on the market.

Our Four Step Allocation Process

We think portfolios should be designed like sailboats. Sailboats are designed for light weather and heavy weather. – so should your portfolio.

A portfolio should accomplish four goals, it should capture the fair winds of a good markets, it should float above the rate of inflation, it should generate income, and it should protect the capital from turbulent markets.
Like a sailboat a portfolio should have a sail to capture the winds of market growth, a hull to float above the rate of inflation, an engine to generate income when markets are flat or down, and a keel to smooth the ride in rough waters.

We weight these asset classes based on our reading of the future risk in the macro-economy and financial markets. You can learn more about our process in the Buy the Book tab.

Contact us to find out how we can risk-manage your current portfolio

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