67 WALL STREET, New York - September 4, 2013 - The Wall Street Transcript has just published its Multicap Growth Investing Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Investing in Financial Services - All-Cap Growth Investing - Disciplined Growth Approach - Global Economy - Top-Down and Bottom-Up Investing - High-Quality Growth
Companies include: Bonds.
In the following excerpt from the Multicap Growth Investing Report, an expert money manager discusses his portfolio-construction methology and his investment philosophy:
TWST: Broadly speaking, how would you describe the investment philosophy that governs all of BTS' investment activities? What do you think makes your philosophy unique?
Mr. Braley: With our preservation of capital mandate, we believe that there are a lot of reasons why the market moves, but we try not to get too caught up in it. The market can move on fear, it can move on Fed news, it can move on strong economic indicators, or it can move due to contrarian types of positions. So when the market is moving all over the place, when there are all types of inputs from the different mediums out there and differing economic advisory opinions, we believe that everything will factor into price, and we need to focus on price alone.
For the past 30 years, we've created proprietary models that guide our trading decisions, which are 95%-plus technically driven. So we've built these models and continue to fine-tune the models. It doesn't mean we jump from one investment to another or flash trade from one trade to another. It means over time, as new information is available or opportunities present themselves, we can use the new information and try to help our investors stay ahead.
But at the same time, we're never trying to predict the market. Our portfolio doesn't say, "We think the markets are heading in this direction, so we're going to get in." It reacts. When I say react, it means reacts early. When we look at a buy, for example, say we like high yield at this point and the market is just starting to bottom out and starting to work up, we would want to capture 80% of that upside. So we would need to see the market firming from upward price momentum. And then once we believe that the trend momentum is there, we want to try and capture 80% of the upside.
At the same time, on the downside, we want to avoid 80% of the down market, meaning we have to see some of the fall. We have to see some of the drop for either our indicators to go negative or for our preservation of capital stop losses to kick in. So on a buy decision, it has to be technically based; but on a sell decision, we don't look at the markets and trade in today and get out tomorrow. We're trying to be invested 60, 90, 120-plus days. So at the same time as we use the models to get into the market, it may be hard to react to a quick exit if the market starts to sell off hard. So we've put in pre-determined stop-loss protection.
As an example in our portfolios, we invested in high-yield bonds in July of 2012. In June of 2013, we exited those high-yield positions. We realized a double-digit return in the market, but we started to see some drawdown, and we accepted at the top about a 3% drawdown and then exited. Hypothetically speaking, if we had just invested in that position and we started to see it falling, we wouldn't accept the 3% drawdown, maybe it would be at 0.5%, 1%, 1.5%, and we'd want to exit from the position. But we make our decisions depending on...
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