The cornerstone of our investment services has always been
our dynamic approach to protecting assets in times of high risk or very weak
investment conditions. Although our
systems have changed dramatically over the years with constantly changing
technology, our focus on minimizing investment losses during the most
challenging times has served our clients very well for over three decades.
The foundation for our belief in protection of accounts is
rooted in simple mathematics. Here is an
example…If you lose 50% in a bear market, it then takes a 100% rate of return
to break even. Why? Because after the decline, you only have half
as much money to work with. It could
easily take 5-10 years to recoup your losses.
However, if you lose only 10% in a bear market, you could then recoup
your losses with an 11% return, which is possible in a relatively short period
of time. We had two bear
markets in excess of 45% between 2000 and 2010, and that is why it was called the lost
decade. However, we feel it was not lost for our
clients, as they did not experience the full impact of the the bear markets,
making the recovery time much shorter. The
bottom line is that, mathematically, it is far more important to be really good
at minimizing big losses than being really good at capturing gains. Obviously, we try to do both exceptionally well. The concept of proactively
protecting accounts is something that we believe most firms, especially large ones, are
unable to execute and, therefore, do not promote the philosophy.
Since the inception of our firm in 1981, there have been
numerous bear markets (greater than 20% declines). Here are the statistics on some of the worst
declines that we successfully negotiated with our defensive strategies:
Largest Bear Markets in 30 Years (S&P 500) |
|
|
|
|
|
|
Description |
Specific Time Frame |
High |
Low |
Decline |
|
Primary Factors Causing Decline |
Crash of 87 |
8/25/87 - 10/19/87 (55 days) |
336.77 |
224.84 |
-33.2% |
|
High trade deficits |
Bear Market of 1990 |
7/16/90 - 10/11/90 (87 days) |
368.95 |
295.46 |
-20.0% |
|
1990 Recession & Iraq invaded Kuwait |
Bear Market of 2000-2002 |
3/20/00 - 9/30/02 (924 days) |
1527.46 |
800.58 |
-47.6% |
|
Tech. bubble & 9/11 terrorist attack |
Bear Market of 2008 |
10/9/07 - 3/10/09 (518 days) |
1565.15 |
719.6 |
-54.0% |
|
Real est. bubble & failure of Lehman Br. |
As you can see, some of the declines are over a relatively short
period of time, while others are over years.
It is also noteworthy, that the the recent period since 2000 has been one of the worst periods
of time for investing, unless you were defensive
oriented. Our firm goal, for our client
accounts, is to avoid at least half of any individual bear market. Again, the
advantage of this system is that by losing less than the markets, we can recover much sooner and, therefore, enhance
the overall rate of return. A secondary
benefit is that from a client’s emotional standpoint, our process tends to be less
stressful and easier for our clients to stick to the long-term game plan. We apply this strategy to all accounts,
whether conservative or aggressive.