INVESTMENT STRATEGY

Our Market Anomaly Program (The MAP)

We have developed a proprietary system for identifying a behavioral anamoly in securities.  Once the anomaly is identified, we subsequently initiate a buy or sell price for the security.  The strategy has been relentlessly backtested and proven itself to be successful in real, live markets.   

The objective of our system is simple in theory, much more complex in practice.  Our goal is to identify low-risk buying opportunties (and low-risk short-selling opportunties in margin approved accounts) over 150 times per year.  By "buying low" so often, we take advantage of what we call "The Law of Parabolic Proportions"

When implementing our strategy, we abide by 4 rules detailed in our Investment Philosophy:

  • Rule #1:  Don't Lose Money
  • Rule #2:  Buy Low, Sell High
  • Rule #3:  Sell High
  • Rule #4:  When there is a pile of money sitting in the corner, go pick it up. 

Our MAP system typicalliy identifies capitualation events where a stock has either fallen or risen to a potential inflection point (Rule #2: Buy Low).  Once we enter a position in a security, we simulateously enter a stop-loss price where we will exit the position if the signal is false (Rule #1:  Don't Lose Money). 

Finally, our system identifies when momentum may be exhausted and we are proactive about closing profitable positions (Rule #3: Sell High). 

In addition, we periodically find opportunities with exceptional risk/reward parameters not identified by our MAP system.  These opportunties fit Rule #4: When there is a pile of money sitting in the corner, go pick it up.  These opportunties do not occur as often as we like but often enough to make it worthwhile to continually search them out. 

We implement our strategy in accounts approved for margin (Long/Short) and non-margin accounts, primarly for IRAs (Long only).

 

The following are foundational tenets for our strategy:

  • Our universe of securities includes over 100 securities, most of which are components of the S&P 500.  We have included a healthly dose of alternative securities and international names for the purpose of divesification.  As Jim Cramer famously said, "there is always a bull market somewhere".  Our objective is to have a wide range of securities that are both correlated and non-correlated to the S&P 500 thus providing us with profitable opportunities even in a bear market.
  • We will never be invested in all the securities in our population.  Our total market expsure will vary significantly. 
  • Our strategy is practically 100% mechanical with very little subjectively factoring into trading decisions.
  • We have a target acceptable loss for every position in the client account.  No one position is going to sink our strategy.   
  • Furthermore, we manage risk for the total portfolio by limiting the number of securities we hold at any given time.  It is our objective to not risk more than 5% of the portfolio at any given time. 
  • Our system takes a proactive approach to exiting profitable positions as well.  Ironically, our entry is determined by an anamoly event while our exit strategy is often determined by the inverse, meaning, when a security starts to act normal again, we exit the position. 

Who benefits from our strategy and how does it fit into a portfolio structure?  The answer to this question largely depends on three other questions. 

Question #1:   Are you relying on your investment portfolio for retirement income?  If Yes, our strategy maybe an ideal fit for your "at-risk" assets.  With interest rates at generational lows not providing any sort of meaningful income, our strategy seeks to create consistent trading gains.  To further understand the critical importance of avoiding losses in a retirment account, please read our Sequence of Return Risk page.  And if you are invested in bond mutual funds, please be sure to read our "Bond Fund Reckoning" page. 

Question #2:  Are you pessismistic that the market will continue to deliver consistent gains as it has the past decade?  If Yes, then our strategy is a definite  fit for you.  I don't know of another manager that is so strictely disciplined about risk management as we are.  Regardless of where the indexes go over the next decade, there will be opportunities.  Fortunes were made in the 1930's and 1970's.  Sir John Templeton and John Maynard Keynes both created their legacy in the 1930's.  Warren Buffett's best years were in the 1970's.  But tracking the indexes during these times was at one's own detriment.

Question #3:  Is protecting principal more important than taxable activity?   If YES, you are either investing with an IRA account or you have significant loss carry-forwards, then our strategy is even more suitable.  We are active, very active.  And not at all tax friendly.  if we meet our objective, we will generate substantial short-term taxable gains in your account.  We will take some nominal steps to defer some short-term gains if possible but it is not our stated objective which is to turn profits in all market environments. 

Of course, if you invest using an IRA, the tax issue is mute.  And we have clients with loss carry-forwards thus negating the tax issue.  But if you are sitting on sizeable unrealized gains and your tax bracket is substantial, it makes what we do less attractive. 

 

If your answer to any of the above is YES, we would appreciate the opportunity to discuss our strategy with you and see how it may fit into your portfolio.  You can fill out the Contact Us form or call us at 830 | 460-2050.  You may want to visit our How we work with our clients page as well.