Portfolio management is a blend of art and science. Past performance is useful, but just picking investments that performed the best in the past is not a good way to build a portfolio for the future. That is why our portfolios reflect a well thought out and disciplined approach to both asset allocation and security selection.

First, we start by determining an appropriate asset allocation based on your specific needs and objectives. We call this the neutral portfolio allocation. This neutral allocation provides us with a reasonable starting point, provides a target allocation absent any compelling opportunities, and serves as a benchmark against which to measure value added. We offer four neutral portfolio allocations.

Conservative Balanced: The investment objective of a conservative balanced portfolio is to minimize volatility and not exceed a 5% loss in any 12-month period. This portfolio is intended for investors who value short-term capital preservation over higher long-term returns.

Balanced: A balanced portfolio is designed for clients who want some additional equity exposure, but still want a fairly conservative approach. The risk target is to limit losses to less than 10% in any 12-month period.

Equity-Tilted Balanced: The equity-tilted balanced portfolio is for the investor who is more comfortable accepting higher short-term risk in exchange for an increased likelihood of above-average long-term returns. The expected loss should not exceed 15% in any 12-month period.

All Equity: Maximizing long-term capital growth is the investment objective of an all equity portfolio. Returns in this portfolio will be as volatile as the market.

Second, we adjust the neutral portfolio allocation whenever there is a compelling opportunity. A compelling opportunity arises when an asset class is extremely undervalued relative to other alternative asset classes. We consider many investment choices when comparing valuation, including, but not limited to common stocks, corporate bonds, preferred securities, REITs, and covered calls. Identifying compelling value requires in-depth analysis of fundamentals and valuation. It also requires patience. It is important to wait for clear value and not buy high risk, low reward investments.

Third, we perform rigorous research to identify attractive investments. We want to know three things before investing in any company: how much we are paying, what we are buying, and is the company’s business getting better, staying the same or getting worse. We buy stocks that exhibit attractive valuation characteristics, strong business fundamentals, and positive business momentum. We sell stocks when price appreciation pushes valuation to the high-end of the range, when funds are needed to invest in new equity ideas with higher return potential, or when business fundamentals start to deteriorate. Because what you don’t own is as important as what you do, we avoid overpriced, comfortable companies, and inexpensive, dismal companies.