Trend following is a technique that analyzes security prices over varying time frames. Generally, portfolio managers use short-, intermediate- and long-term time frames to measure trends. Imagine you are analyzing a collection of securities. A trend follower would rank the list of securities by price performance over specific time frames. He or she might set the time frames at 1 month, 3 months and 6 months to determine which securities performed the best in these periods and invest accordingly. It’s like analyzing baseball player batting averages for certain time frames and choosing the best hitters.
At SIM, we focus on intermediate-term time frames since often short-term measures are too volatile and long-term measures have less upside potential.
Relative strength is closely related to trend following in that it seeks to find outperforming securities. However, relative strength compares a security’s performance to the overall market, and focuses on those that are outperforming the overall market. The “overall market” depends on the asset class the portfolio manager is analyzing. For example, if the manager is analyzing US stocks, he or she would compare the performance of each domestic stock against a US stock index, like the S&P 500, and potentially buy those that are outperforming the index. Sticking with our baseball analogy, this is like comparing each hitter’s batting average against the league average.
Risk management is the most important feature of Secure Investment Management’s investing approach. Since we focus on performance leaders, it’s crucial that we utilize safeguards to protect your assets should the markets become too risky. One safeguard we use is volatility control. If a security has been outperforming its peers and the overall market with wild price swings (volatility), we will avoid that security.
We seek investments that have exhibited steady outperformance compared to their peers and market indexes. We’re not looking for securities that have performed with high unpredictability and volatility.
Occasionally, there will be times when there are no good places to invest. Everything could be going down in value in some cases. In these environments, Secure Investment Management goes to cash to protect your hard-earned assets.