For decades, investors have been “taught” two rules about portfolio management. The first is that the stock market does well over time, so one should buy into the stock market and hold that investment forever (buy and hold). The second rule that investors have been “taught” is to buy low and sell high. This seems to be conflicting advice. You cannot buy and hold forever while trying to buy low and sell high.
Buying and holding does well when markets go up, but can try an investor’s patience when markets decline. Most advisers encourage their clients to sit tight during market declines, stating that the market will recover and so will the value of their investments. Problems arise when the investor sees account values decline to such a point that their passive style of investing turns into active panic and they decide to sell their stock holdings. More often than not, based on their emotional reaction to a market decline, they end up violating both rules. They sell low, not buying again until the market recovers, usually at higher prices and they are no longer holding forever. They lose money, time and compounding periods and potentially their ability to retire when and how they want.
Eggert Financial Management (EFM) manages portfolios with a process that seeks to protect values in declining markets while building values in advancing markets. EFM does this by utilizing various rules, strategies and tactics to help determine market direction and overall trend. Trending analysis allows EFM to monitor and control the risk level of portfolios by dynamically allocating money into stocks or away from stocks as indicated by the portfolio management rules.
EFM believes this risk management first approach leads to better long-term performance and less opportunity for investors to make untimely, emotional decisions. This means that “Buy and Hold” does not have a place in EFM managed accounts, since Buy and Hold has no risk management process other than “close your eyes and hope”. The investment management models and programs offered by EFM are objective, quantifiable, and rules-based, leaving no room for emotional subjectivity. Each portfolio model embeds methods of managing various risks in the market with the goal of reducing investor exposure to ruinous declines over full market cycles.
At EFM, we believe that our job as a portfolio manager is to help our clients invest money in a manner that not only creates returns on a short-term basis but reduces the possibility of catastrophic losses which erase years of growth.
Here’s a way to think about how EFM manages money. If you are driving on the highway, do you always have your foot fully pressing down on the accelerator pedal? Probably not. Why would you? If you do, it would increase your chance of a crash. Most likely you give the car some gas, occasionally take your foot off the gas and use the brakes. You might even look for an exit ramp to avoid the jam up ahead. You do all these things to get to your destination safely, in one piece, without crashing or losing significant time.
Thanks for looking at our site. We look forward to helping you with your investment management needs.