Today’s financial markets are highly influenced by government policy decisions and interventions. Attempting to fix one problem inevitably creates unintended consequences resulting in boom and bust cycles. We want to be able to identify and participate in booms and protect from the busts.

John Kenneth Galbraith famously said, “The only function of economic forecasting is to make astrology look respectable.” We agree. Attempting to predict price movements in financial markets is a fool’s game. Supply and demand is what ultimately moves price so we employ sophisticated algorithms to determine who is in control – the buyers or sellers. We are not in the business of predicting markets. We never tell the markets what we think they should do. Rather, we monitor and objectively measure current market conditions and react accordingly. Aligning ourselves with these forces puts the odds on our side.

Momentum is the idea that a body in motion tends to stay in motion. This physical law is also prevalent in financial markets. Eugene Fama, a Nobel Prize winner for Economics, has said that momentum is “an anomaly that is above suspicion…the premiere anomaly.” We see that markets or sectors that have had strong performance tend to see continued outperformance for a period of time. Our portfolio selection process takes advantage of this tendency.

Traditional investment management says that an investor’s asset allocation determines their risk and return profile. More risk is required in order to get the potential for larger returns. The problem is that these returns come with the price of increased volatility and risk that most investors cannot tolerate. Ultimately, investors are forced to choose between potential increased returns and safety. Our active management approach aims to get the best of both worlds – competitive returns with reduced volatility though the use of a proven strategy governed by objective rules.

Most people are familiar with the idea that combining asset classes will reduce portfolio risk. Another important concept is the use of multiple strategies. The blending of multiple non-correlated strategies into a portfolio has the benefit of providing the majority of the returns of the base strategies while the reducing overall volatility. Each MVP Portfolio is a combination of several unique strategies that use different signals and investment choices in order to take advantage of this idea.

Benjamin Graham is known as “The Dean of Wall Street.” He famously said, “The essence of investment management is the management of risk, not the management of returns.” The key to good returns over multiple market cycles is limiting losses in down markets. It’s not how much you make in up markets, it’s how much you don’t lose in down markets. The MVP Portfolios are built with risk management at their core.