The essence of our investment philosophy, developed after much research and many years of experience, centers on the understanding that the stock market moves in cycles generally referred to as Bull (upward movement) and Bear (downward movement) markets. We refer to long-term (years to decades) market cycles as secular bull or bear markets. Within secular bull or bear markets are shorter-term (months to years) or cyclical bull and bear markets. And within cyclical bull and bear markets are intermediate trends that can move in either direction.
Market movements are driven by the demand for and supply of stocks. If demand is greater than supply, the market trends upward. Conversely, if supply exceeds demand, then markets will fall.
In addition to understanding stock market cycles, attention must be paid to the valuation of the investment. Essentially, valuation represents the relationship between the market price of an investment and the earnings and cash flow expected from the security.
Determining when to purchase and sell investments considering the principles of market cycles and valuation becomes crucial to successful investing.
Using various financial models and metrics which analyze market movements and supply and demand for equities, we will determine the existing market cycles and intermediate trend. We contend that risk is reduced when investing in a market that is moving in the direction that it should be moving based upon fundamental indicators.
Our goal is to attempt to achieve gains in both cyclical bull markets and cyclical bear markets. In over-valued cyclical bull markets we will become defensive through the use of stop-losses or reduced equity exposure. In cyclical bull markets deemed significantly over-valued, we could elect to maintain no exposure to equities.
Our investment strategy requires three kinds of tools: tools to identify market cycles & trends, high-performance portfolio candidates, and market valuation.
Combining these three tools gives us a complete strategy, providing guidance on when to be in the market, when to “short” the market, and when to be defensive, and, when on offense, how to construct high-performance portfolios. Our investment approach involves diversifying investments among various asset classes predominantly using Exchange Traded Funds (ETFs).