A Portfolio Strategy for Every Market

September 7, 2016

The worst thing an investor can do is switching portfolio strategies based on a particular event or certain economic news.   The best thing is to have a portfolio strategy and stick to it.

Our portfolio strategy is based on 5 simple tenants:

1 – Belief that equity markets will continue as they have for over 100 years, to move through decline and recovery cycles, with each successive recovery higher than the last..

2 – Volatility is not risk – it’s just equity market fluctuations that represent current sentiment of value in the market – most of which is driven by emotion.

3 – Global diversification of investments, by company size and investment style.

4 – Money needed over the next two years must be in cash like investments – particularly when markets are close to peaking. The remaining investment is to be held in a diversified equity portfolio

5 – Annual rebalancing back to target allocations.

Gone are the days when holding 40% in bond fund portfolios would comfortably return 5- 8% with the remaining allocation is equities.   To achieve the investment returns most people need to reach their goals, a greater exposure to equities is required. This means greater volatility. Understanding (or maybe accepting) that volatility is not risk if the investment strategy includes an appropriate allocation to non-volatile cash investments is important.

Value vs Growth

April 8, 2016

According to a recent article in Morningstar – I’m vexed!  My investment strategy is value biased.  I recommend investment managers for my client portfolios that purchase shares at a discount and wait patiently until the market discovers their real value and rise.  The value investment approach has been out of favour now for about 10 years.  So what to do?

Since about 2005 a growth investment style out-performs a value style.  A growth style focuses more on various growth factors (revenue, profit etc.)  We are now seeing value investors switching to a growth style – likely because they have lost patience.  Once again investment behavior will be the determinant of investment success or failure.

History tells us when the masses move in the same direction; ensure you move in the opposite.  The chart below is a relative wealth chart and plots the Russell Value index versus the Russell Growth index.  When the line points down, a growth investment style is winning and when it points up, a value investment style wins.  Given what goes down must come up – I’m betting value is poised to recover.

Russell 3000 Value vs Growth