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Investment Methodology

When it comes to the investments we make for our clients, our foundation is a very simple concept — the economic law of supply and demand.

The law of supply and demand is just as relevant to the price of investment securities (stocks, ETFs, mutual funds, etc.) as it is to the price of gasoline at the pump or the price of oranges in the grocery store. When high levels of demand for an item exist (or supply is scarce), its price increases; when low levels of demand (or high levels of supply) exist, the price falls.


With this in mind, our philosophy is that we should own securities when demand is "in control", and on the other hand we should look to move our clients' assets elsewhere if/when it becomes clear that supply is "in control" of a particular security. 


How do we determine what securities to buy? And how do we know when to buy them? Our research is primarily done in two areas: Point and Figure Charting (PnF), and relative strength calculations (R.S.). Point and Figure charts track the price movement of security to help us map which side is winning the "tug-of-war" match between supply and demand. Relative strength calculations give us the ability to rank securities and asset classes (based on price movement) to determine which positions are the "strongest" among their peers. 


A Top-Down Approach to Investing Client Assets


Whenever we are given the opportunity to invest in client assets, we take a top-down approach to determine the most appropriate plan of action. Specifically, we consider:


  • Overall Market Conditions: We study numerous macroeconomic indicators to answer a simple question - are market conditions favorable to make purchases? If the answer is no, we will keep funds in cash (which we consider an asset class) or look for opportunities in defensive asset classes such as fixed-income or commodities. If the answer is yes, we move forward to find the most appropriate securities.

  • Favored Asset Classes: Using both Point and Figure charts and relative strength calculations, we are able to rank six asset classes (Domestic Equity, International Equity, Fixed Income, Foreign Currency, Cash, and Commodities) and determine which offer the most appropriate opportunities for our clients' assets.

  • Opportunities Within Classes: Once we've selected the appropriate asset class(es), we then use Relative Strength to determine the best opportunities available. For example, if Domestic Equity is found to be the strongest asset class, we would then drill down to find out what the strongest opportunities are within that class - perhaps one or more economic sectors (i.e. Healthcare, Energy, etc.), or a broader-based style (i.e. Large-Cap Growth, Small-Cap Value, etc.).



This approach gives us a process that eliminates emotional decisions ("I can't sell this stock - my grandmother worked for them!", "But this fund did so well last year, let's give it the benefit of the doubt.", etc.) from the equation and is repeatable in all market conditions. 



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