| The chart data is taken directly from our portfolio management software and reflects all the trades over the last seven years. The illustration includes all the asset classes such as Emerging Markets, US Large Companies, International Stocks, etc. When reviewing and determining what asset to buy, we look to see which is most out of balance, or in other words, which component is doing poorly compared to the others. The frequency and systematic approach in the real world means we buy when assets are low.
Our strategy also includes choosing to take dividends in the form of cash instead of reinvesting in the same fund. In a year that found interest rates much higher, it has provided the portfolios with more cash to invest. This strategy of generating cash from dividend payments allows us to buy segments of the market that are lower rather than purchasing those that have performed the best.
It is easy to spot on the chart, but even as the global markets continued to move lower through 2022, purchases took place for client accounts. The purchases were across all market segments, with a notable tilt towards Real Estate, which performed the worst. This has nothing to do with our feelings about the prospects for Real Estate or any other segment. Instead, these were made to keep our portfolios within the range of their long-term allocation.
Our trading process doesn’t rely on inside information or secret knowledge about when the market could turn around. We review accounts and determine whether the allocations are inside or outside the pre-determined guard rails. We remedy the situation by placing trades if they are out of drift. We purchase when below the threshold and sell when above. The effect is systematically purchasing assets as they are more favorably priced and trimming profit as they recover over time. If no trading is required, we sit tight until the next review period. No outside influence or internal beliefs dictate when we are buying or selling for our clients. The price action in the market and our client’s long-term financial goals guide our trading decisions.
Portfolio management is not as simple as buying and holding forever or trying to time the market or predict the future, which is impossible. Investments fluctuate in value, and over time making no adjustments can lead to more exposure to risk than when you started. Our philosophy isn’t passive or conventionally active in how the financial media would lead us to believe is essential for success. A rules-based approach that is disciplined and takes the emotion out of the equation has allowed us to take advantage of price changes while maintaining a consistent level of risk unique to each family we serve.
We all know that money is made by buying low and selling high. Unfortunately, emotions can tempt us to do the opposite in the heat of the moment. Because our clients have an investment policy statement in place, we already know how we will respond before the next crash or boom occurs. While we cannot predict the future, we have put in place a rhythm of buying as prices get lower and trimming profit as investments grow. As years turn into decades, these small adjustments compound and produce a plan for our clients that will stand the test of time. |
