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Our Personal Approach

Our Approach to Equity Management

The process:
We believe that the equity selection process requires a review of the fundamental and technical attributes of any company we recommend for an investment. We utilize a five-step process to evaluate those companies. We subscribe to Standard & Poors for our fundamental research and also utilize the Point and Figure methodology for our technical research.

What is Standard & Poors?
Standard & Poors research is an unbiased fundamental review of most stocks traded on the major exchanges in the United States. Through their analysis, they are able to ‘grade’ a stock based on the fundamentals of the company. This analysis includes earnings growth, debt level, cash on hand, and how the company compares to its peers. They do not review the technical or timeliness of an investment in the company just if it would be a solid company to invest in.

What is Point and Figure?
Point and Figure (PnF) is a type of technical analysis that was originally created by Charles Dow in the late 1800s. He wanted a way to follow the trend of a stock on the exchange. The main premise behind PnF is the irrefutable law of supply and demand. We believe that by monitoring the supply and demand relationship that we can identify those companies that have solid fundamentals and are also ‘acting’ better then their peers in the market. PnF enables us to measure the amount of risk we are willing to take for an anticipated level of reward.

How we put it all together:
The First step in the investment process is to decide should we be investing in the stock market now, or do cash and/or fixed income vehicles offer a better risk-adjusted return currently than stocks. We believe that in order to be a successful investor you must know if you are on the offense or defense at any given time. To measure this we utilize the NYSE bullish percent indicators¹ or the OTC bullish percent². These indicators tell us if the market as a whole is rising or declining and if we have favorable ‘field’ position or not.

Should the answer to step one be stocks, the Second step is deciding what areas or sectors of the stock market offer the greatest potential / reward for the least amount of risk. To measure this we utilize several different indicators but believe that relative strength is the best indicator for sector strength. Relative strength is simply a sector or stocks ability to perform better than the market. This does not always guarantee we make money but it does help increase the probability of avoiding poor performing stocks.

The Third step is fundamental analysis. After determining what sector offers the greatest potential, we will perform a fundamental screen on that sector to narrow our available selection of suitable investment options. This is the first step where we begin looking for individual stock ideas. Our initial research begins with the market and sector because history has shown that the market and sector account for as much as 80% of the returns in any individual stock.

The Fourth Step is Point and Figure analysis. After narrowing the universe of eligible investment options we review those equities that meet the fundamental requirements we have established. We begin to look for stocks that have a relative strength greater than the market or peers and are trading on a positive trend; meaning that demand is in control so the price is rising. At the time that we finally arrive at an investment we are willing to make, we review the risk to reward and set appropriate limits or stops to minimize the potential loss of principal.

The Final Step is the ongoing monitoring of our positions. This is the point where we continue to monitor the market, sector, and stock to adjust our stops or limits. We believe that you should hold on to winning positions and eliminate losing positions. It is also our belief that you should capture some of the profits in a rising stock just as you stop large losses on non-performing stocks.

In Summary, we believe that this five-step process helps us to minimize the risks associated with investing in the stock market, while increasing the number of positive attributes a stock has before we invest in it. This process allows us to have a structured discipline to our investing³. We look forward to working with you to manage the risk in your portfolio and to help grow the wealth you have accumulated.

¹ NYSE Bullish Percent is a primary market indicator that measures risk. It is bullish at the bottom and bearish at the top. It is calculated by taking the number of stocks on the NYSE on a buy signal and dividing by the total number of stocks on the the NYSE, resulting in a percentage.

² OTC Bullish Percent is a primary indicator for the NASDAQ over-the-counter market that measures risk. It is bullish at the bottom and bearish at the top. It is calculated by taking the number of stocks on the NASDAQ on a buy signal and dividing by the total number of stocks on the NASDAQ, resulting in a percentage.

³ There is no assurance that this five-step process will ensure a profit or protect against a loss, since investments are subject to market risk, including possible loss of principal.

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