In our management of portfolios, we generally subscribe to Modern Portfolio Theory, which holds that the risk-mitigating effects of holding a basket of equities enables pursuit of higher return than might be accomplished by simply “averaging” the risk of individual equities.
Specifically, Modern Portfolio Theory as enunciated under founder Harry Markowitz demonstrated that standard deviation for a basket of disparate assets (such as equities chosen from different sectors) would be lower than the simple average of standard deviations for those assets.
Modern Portfolio Theory (MPT) has displaced the Prudent Man Rule, whereby portfolio creation, assembly, rebalancing and monitoring consisted of weighing the risks to each individual asset. Under prudent man rule, riskier assets would be excluded from most portfolios; and individual asset decisions would likely exactly mirror decisions made by individual analysts.
Top Down/Bottom Up
Our Top Down/Bottom Up approach involves looking at the “big picture” of global economies and then breaking those components into finer details. After looking at the big picture conditions around the world, the different industrial sectors are analyzed to select those that are forecasted to outperform the market and selected benchmarks. From this point, the stocks of specific companies are further analyzed and only those that meet our strict criteria are chosen as investments.
Our rules based management avoids investing on emotions or unverified information. Maintaining this disciplined approach, our portfolios only hold investments that meet the strict criteria set forth in our screening process and avoid those that do not. This time honored tradition of fundamental investing is further enhanced by daily monitoring of every position held using a combination of Technical Analysis and Fundamental Data, both current and forecasted. When the reasons for holding a position are no longer evident, positions are removed and replaced.
