Investment Strategy

Summary:

  • The Goal: a large degree of participation in the long-term market uptrends as well as... .
  • a reduction of the risk and the volatility in falling markets.
  • Over the course of many trend cycles a better performance than the benchmark combined with a lower volatility is being achieved.
  • The risk reducing approach enables investors to stick to long term investment goals and portfolio allocations .
 

The starting point for our trend-following approach are the wishes of every investor: to take part in the bulk of the long term uptrends and to be protected as much as possible from the effects of the long term downtrends. As it is not possible to take part in uptrends without paying a certain price (risk), a method must be found to ensure a high degree of participation in climbing markets while reducing the effects of falling markets.

Market movements are a complex combination of individual moves in different time frames. These, observed from a "time" viewpoint, can be seen as up and downwards moves on different levels. These different trend levels can reinforce or work against one another. The DAXTREND concept was developed by us to deal with these complex moves. It is tuned to the different market phases and in downtrends reduces the degree of investment in a series of steps with the help of derivative instruments. When the market starts to climb the degree of investment is gradually increased as the hedges are lifted. This systematic approach requires a great degree of precision and discipline in its execution.

What are the long term advantages for the investor?

The advantages of this approach are obvious: due to the requirement to stay long in uptrends, even when a majority of market participants do not agree, the investor remains invested and participates in the large upmoves in the stock market. This is important in order to obtain a good long term return on investment. On the other hand, when the market starts to move in the other direction the investments start to be hedged, even when the consensus opinion in the markets is still strongly bullish. This frees the investor from the "timing problem". Questions on the exit or entry to the market are answered by the system with its multi-level time frame approach - the "constant" buying and selling is systemized. The hedges produce a lower volatility which lowers the risk of the total investment and gives the investor peace of mind. The realization of hedge profits at the end of downmoves adds - over many market cycles - to the greater performance against the benchmark.

The most important advantage of the approach: Through the risk-reducing investment process and its disciplined execution the investor is in a position to stick to his long term investment goals and portfolio allocations. Strategic goals must not be sacrificed to tactical considerations which can make long term goals impossible. Every investor knows the experience of having to leave the market because he cannot take the losses any more, and then later at the wrong moment entering the market as it is running again. The G&W system increases “by itself” e.g. the stock positions without emotion and in a series of steps when the trend is pointing upwards. Since stocks are without doubt an important and irreplaceable portfolio building blocks for the long term, a risk-reducing approach must be given a high priority for times of crisis.

The risk in investments must be considered just as the opportunities. Please click risk for an overview of the basic risks and the specific risks of our approach.