We believe that addressing the potential for wealth erosion is critical to effective investment management today. To seek to address volatility, while continuing to participate in the benefits of stock investing, it's important to:
Diversify your holdings and introduce decorrelated assets to the portfolio,
Tactically respond to market change to identify an optimal portfolio of efficient investments, and
Use cash or other defensive vehicles only when you can't find anything that meets your buy criteria.
Diversification using Discorrelated Assets
In today's global economy, most stock markets operate efficiently the price of a stock represents its known value. The US stock market, for example, is so efficient that price change is driven primarily by market sentiment, supply, and demand. In the international markets, country-specific ETFs are highly liquid and offer the chance to efficiently participate in equity markets outside the U.S. at relatively low trading costs. As we look to further diversify to lower risk, US stocks and international ETFs along with segment, industry sector, regionally developed and emerging international index market ETFs expand our opportunities for lower market correlation.
Tactical Optimization via Efficient Investments
MRM's proprietary quantitative approach brings an emotionless decision-making approach focused on the evaluation of potential ETF holdings based on a set of well-tested and systematic criteria. We review equity candidates on an ongoing basis and attempt to identify portfolios invested in an optimal mix of securities, based on characteristics our research shows may provide strong return potential with controlled risk. Our tactical investment process monitors market change through a bottom-up analysis where market shifts are quickly identified through changes in stock and ETF characteristics.
Use Cash or Other Defensive Vehicles When Quantitative Analysis Can't Find Good Investments
MRM agrees that even the most skilled professional investor cannot predict when markets will rise or fall, based on economic projections or other top-down market-timing approaches. We do believe, however, that an investor cannot ignore situations when very few investments look attractive. We buy attractive ETFs or stocks only when they meet our requirements and invest the remaining portfolio assets in cash or other defensive vehicles. This approach seeks to protect the portfolio from the potential of significant losses.
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