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For most people, losing money feels bad more than making money feels good. In other words, fear is more powerful than greed. Moreover, if you had $100,000 and lost 50% you would be left with $50,000. In order to get back to $100,000, your $50,000 would need to double and grow by 100%, not 50%. Therefore, in terms of emotions and pure numbers, large losses in a portfolio need to be minimized.


That is why our investment philosophy is predicated on managing downside risk. This is done in three ways:
  1. A two-pronged approach - Momentum and Value Investing 

We use a two-pronged approach to investing that are comprised of academically well-established drivers of return for long term investors.  The two prongs operate over different time frames and hence are a hedge to one another, often being inversely correlated.

Momentum – Those assets that have been performing well in the short term past will typically continue to perform well in the short term future. We use a proprietary algorithm that incorporates short-term risk, return, and correlation to give us the appropriate momentum based allocation.  Momentum operates over a short term time frame.

Value – We conduct a top-down active asset allocation approach where we look to invest in assets that are trading below their intrinsic value. The allocation is filtered through an experienced view on macroeconomics, market cycle, asset class, regional/country exposure, and sector.  Value operates over a mid to long term time frame.

2. Minimize Correlation - We invest in assets that move independently of one another so that whilst some assets are going up, others are going down, and then vice versa. The net result is smoother overall volatility.

3. Minimize Loss Potential - We construct portfolios based on how they respond to market losses, emphasizing strong Sortino ratios (downside risk-adjusted performance) and lower downside capture ratios.

This risk managed approach would not be as relevant to aggressive investors and therefore would be modified accordingly for aggressive portfolios. However, it is very applicable to moderately aggressive and conservative investors, especially later in the market cycle. At the end of the day, we know our clients and their portfolios are based on who they are, their goals, and their unique timeframe.
Client portfolios are typically monitored on a quarterly basis depending on the particular client engagement and are modified as needed based on model portfolios that are reviewed and adjusted monthly. We have a disciplined process alongside flexibility to act on short notice under market duress.
Investing is not all science and numbers; intuition and experience also come into play. We study the markets daily and with experience built up over the past decade, investment decisions are made based not only on market fundamentals but also an understanding of market psychology and behavioral tendencies. This sometimes means taking advantage of market inefficiencies and anomalies (prices being over and under fundamental valuation). By combining art and science, we strive to maximize returns whilst minimizing risk.

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