Most questions from investors are about finding the right time to get into and out of the markets. Getting the timing right is almost impossible, however. Our feelings often tell us to do exactly the opposite of what we should. Investors who are driven by emotions and who make their investment decisions from the gut rather than with their heads tend to buy stocks when markets are riding high and then sell them in a panic when they fall. Scientific investigations of investors have proven this to be the case. This phenomenon is also called the herd mentality. More information about the herd mentality and other investor cases.
We offer investment solutions for investors who don’t allow themselves to be driven by their emotions. These solutions are based on a philosophy that eliminates worries about timing entries to and exits from the markets.
Choose the right strategy
Based on thorough analyses, we put together strategically optimal investment portfolios that fluctuate far less in value. Using strategic asset allocation, each investment portfolio is structured to achieve maximum diversification.
We currently offer six different risk profiles for our investment strategies. From defensive to aggressive. Choosing the right risk profile is crucial for investors. Depending on your risk capacity, you should select a defensive risk profile (with fewer equities) or an aggressive profile (with a greater equity weighting). Our investment philosophy assumes that an investor will stick to their chosen strategy with great discipline throughout the entire cycle. In other words, the investor will remain invested.
Turn down your emotions when investing
The key element for bringing discipline to an investment portfolio is called monthly “re-balancing”. This is a very simple mechanism that we use every month in our investment solutions for clients who mandate their asset management to us. In the case of a mandate solution with a "balanced" risk profile, we sell a portion of the stocks in the portfolio as part of the re-balancing to make sure that the equity weighting remains at a constant 42% when markets are rising. In other words, when stocks are moving higher we continually take profits on some of the equities, then reinvest these profits into the portfolio exactly in line with the strategic asset allocation. If equity markets move lower, on the other hand, we buy stocks so that the equity weighting in the portfolio does not fall below the strategic level of 42%. In this rebalanced portfolio, therefore, we sell stocks when markets are rising, and we buy stocks when they are falling. In other words, we do exactly the opposite of what many emotionally-driven investors do.
Strategic allocation and broad diversification
The basis of our investment strategy is the strategic allocation and broad diversification of the portfolio using investments that we believe are attractive over a horizon of five to seven years. About 80% of the success of our investment solutions can be explained by strategic asset allocation. In addition to a portfolio's strategic allocation, we also use tactical asset allocation, which has a much shorter investment horizon of only six months. Each month we ask, for example, whether in the next six months stocks will perform better than bonds. If we think this will be the case, we put a greater weighting on stocks than on bonds in the investment portfolios. In the case of a balanced portfolio (risk profile "balanced"), we would raise the equity weighting from 42% to 45%, for example, and lower the bond weighting by three percentage points.
Tactical positioning for fine-tuning
In the same way, we hold tactical positions across individual stock markets, the various bond and credit markets, and currencies. Overall, these tactical positions account for only 20% of total portfolio returns. The key factor remains the strategic asset allocation. We revise the allocation every eighteen months to three years. We take into account the market changes that are beginning to take shape, such as price trends for oil and gold, or the scrapping of the EURCHF floor.
Investors who use the method we’ve outlined here do not have to worry about the ups and downs of the markets. They are ready and willing to stay fully invested using their chosen investment strategy beyond the usual cycle and with a long-term investment horizon