REAL Investment Risk Management

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“Investment management is THE MANAGEMENT OF RISK, NOT THE MANAGEMENT OF RETURNS”
Legendary investor, Benjamin Graham

The REAL Investment Process

Part of our CLEAR Process is the REAL Investment Risk Management Process. We describe our investment management process with the acronym REAL:

R

Risk score analysis

We score both your current investment mix and your personal comfort level of drawdown risk/reward on a risk scale of 1-100 (powered through Nitrogen). Then, we compare and contrast the differences between your risk score, your current investment strategy risk score and our portfolios, reviewing their risk/reward scores and historical statistics.

E

Evaluate, research and
re-allocate regularly

In our models, we evaluate, research and monitor asset classes, sectors and individual stocks daily (looking for the leaders with the most potential) while having a disciplined reallocation/rebalance approach that can pivot at regular intervals or in real time depending on market conditions and trading strategy deployed.

A

Advance and protect tactically

When markets are bullish, we seek to provide optimized opportunities for risk managed returns. When markets turn and are bearish, we employ disciplined exit strategies based on varying timeframe indicators seeking to reduce the risk of loss.

L

Limit Unnecessary Risk Exposure

The culmination of our process is a desire to limit risk exposure to only that which is necessary to accomplish the individual financial goals and objectives of those we serve. Active and tactical investment risk management, combined with income planning that’s not entirely dependent on volatile markets, has the potential to lower the overall risk needed for most clients to succeed.

R

Risk score analysis

We score both your current investment mix and your personal comfort level of drawdown risk/reward on a risk scale of 1-100 (powered through Nitrogen). Then, we compare and contrast the differences between your risk score, your current investment strategy risk score and our portfolios, reviewing their risk/reward scores and historical statistics.

E

Evaluate, research and re-allocate regularly

In our models, we evaluate, research and monitor asset classes, sectors and individual stocks daily (looking for the leaders with the most potential) while having a disciplined reallocation/rebalance approach that can pivot at regular intervals or in real time depending on market conditions and trading strategy deployed.

A

Advance and protect tactically

When markets are bullish, we seek to provide optimized opportunities for risk managed returns. When markets turn and are bearish, we employ disciplined exit strategies based on varying timeframe indicators seeking to reduce the risk of loss.

L

Limit Unnecessary Risk Exposure

The culmination of our process is a desire to limit risk exposure to only that which is necessary to accomplish the individual financial goals and objectives of those we serve. Active and tactical investment risk management, combined with income planning that’s not entirely dependent on volatile markets, has the potential to lower the overall risk needed for most clients to succeed.

The REAL Difference

The essential foundation of the REAL risk management approach we employ for our clients is seeking to achieve the rate of return you need with as little risk as possible.  If risk is managed properly, returns over time should be a natural by-product.

The REAL Difference

The essential foundation of the REAL risk management approach we employ for our clients is seeking to achieve the rate of return you need with as little risk as possible.  If risk is managed properly, returns over time should be a natural by-product.

Buy > Hold > Hope   VS   Model > Monitor > Pivot

Most financial firms employ a BUY > HOLD > HOPE approach to managing risk in your investments. Here’s a simplified explanation:

Buy > Hold > Hope

BUY>

Equities and bonds are purchased based on what “could be” in the future (researched prognostication). Risk is then “managed” based on diversification of individual holdings (the stocks and bonds you own and the area of their respective market IE asset class, stock/bond sector, etc.) and overall holdings (the percentage of stocks and bonds relative to one another IE 60/40, 70/30, etc.).

HOLD>

n as the balanced portfolio) are typically rebalanced (keeping your percentages in line) quarterly but are rarely reallocated (changing “what/where” your invested).

HOPE>

I’m sure you’ve heard it during severe market declines and perhaps you believe it, “Just hold on, the market will recover”. This is coming from the same mouth that legally must tell you “past performance is no guarantee of future results”. The bottom line is no one knows the future! There is no guarantee of recovery from any bear market event regardless of history or what your advisor has told you. It’s all hope! If the next bear market correction happens around your retirement date, are you comfortable with nothing more than “hope”. This is a passive, method of risk management known as ‘static risk management’. In a bear-market, when risk of loss is higher, there may not be enough protection from loss. While in a bull-market, when risk of loss is lower, portfolio performance may suffer.

Model> Monitor > Pivot

MODEL>

We invest by researching and focusing on what is happening in various areas of the markets…now! What “is” happening versus what “could” happen. We only want to be “diversified” into areas of the markets that show return potential now. As those areas change (as they do frequently), so do we at varying time frames, either to other areas of the market or out of the market (depending on market conditions and our indicators). Utilizing patented research and proprietary exit strategies, our algorithmic market momentum indicators along with optimized proprietary blends of trading strategies seek to position our portfolios for performance in all market conditions.

MONITOR>

Once a model is chosen and deployed for a client’s needs, we monitor and rank the changes in 25 different equity asset classes and sectors (including cash) as well as 17 bond sectors daily and document the areas of the market showing the best potential for returns. As indicators and strategies dictate changes by their time frame and discipline we go on to the next point.

PIVOT>

When the model strategies and indicators driving those strategies change, so do model positions. We pivot based on what we know is happening now and the probability of sustained trends.  In bull status markets, we’ll pivot model positions/strategies to the newest leaders if they’ve changed. In bear status markets, we’ll pivot model positions/strategies to areas with less risk of potential loss or out of the market all together per the model guidelines and disciplines (risk dependent).

Investment advisory services offered through Pinkerton Wealth, LLC, an SEC registered investment adviser. Neither Pinkerton Wealth, LLC. nor Wootton Financial Group, Inc. offer legal or tax advice. Model design and research is powered by Sherman Research.

The REAL investment risk management process employs a MODEL > MONITOR > PIVOT approach to investment risk management.

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