INVESTMENT METHODOLOGY
Top-down Approach
At TJSinvest, we use what's known as a, “top-down” approach, meaning we begin our analysis with an assessment of the entire market/economy as a whole. Our investment models consist of several components; primarily a monetary, price, and sentiment component. The monetary component gauges any impact that changes in factors such as currencies, interest rates, or money supply have on various types of investments. The price component gauges the trend(s) in asset prices and assesses the likelihood they'll continue. Finally, the sentiment component attempts to track investors' expectations about the future via their actions shown within data like implied volatility and market breadth.
Inter-market Analysis
We then perform an inter-market analysis to evaluate the prospects of each particular asset class we're interested in (i.e. stocks, bonds, commodities, or real estate). Inter-market analysis helps us determine the proper weighting of each of these asset classes within a client's portfolio based on expected performance.
Security Selection & Exchange-traded Funds
Based on the prior forecasts, we then run an analysis to determine the expected performance of specific types of assets within any given asset class such as for stocks, large-cap vs. mid-cap vs. small-cap companies.
These different types of assets are bundled into Exchange-traded Funds (ETFs) in which the individual assets (stocks in this case) are hand-picked by professional managers of highly reputable investment firms such as Goldman Sachs, Vanguard, Charles Schwab, and iShares; just to name a few. Purchasing assets in bundles like this helps to alleviate the risk that a few may default in the long-run.
Finally, the ETFs with the highest expected performance, relative to the client's investment horizon, are assigned the highest weight in the client's final portfolio. All portfolios seek to achieve the least amount of risk possible for the client's desired return.
The Standard Strategy
If a client opts for the Standard Strategy, their portfolio will generally be more conservative than the Advanced Strategy (below). Once the proper portfolio allocation has been determined, it will be bought and adjusted/re-balanced until their goal is reached (i.e. retirement). We'll meet with the client on an annual basis, or by request, to discuss their portfolio(s), goals, and make any necessary adjustments.
The Advanced Strategy
If a client opts for the Advanced Strategy, we may attempt to “time the market,” by purchasing and/or selling securities in their portfolio based solely on our good faith opinion of future market conditions.
The purpose of using this strategy is to apply tools which provide the best chance of identifying the future direction of market prices. If wrong, these same tools are used to minimize the size of the loss.
Market timing does not imply frequent trading of the securities in client portfolios, it simply implies that during times of market volatility or uncertainty, TJSinvest may increase cash holdings or shift asset allocations toward income producing securities. This is done in attempt to reduce client’s exposure to market downturns; however, it does carry the risk that a forecast may be inaccurate which could result in opportunity costs or loss.
TJSinvest prefers to limit the client's risk of loss by, “averaging-in” to the market. This means that portfolio allocation shifts will occur over extended periods of time (a few months, a year, or more). This makes the exact time and price of each trade execution somewhat negligible to the strategy’s overall performance; therefore, some would argue that the Advanced Strategy isn’t a pure timing strategy.
The Advanced Strategy is only recommended to clients with a greater than ten-year investment horizon.
Additional Information
TJSinvest utilizes both Fundamental Analysis and Technical Analysis to determine our final investment decisions. For more information on these two types of analysis please read below.
Fundamental Analysis:
Fundamental analysis is a method of evaluating a security which attempts to assess its intrinsic value by examining related economic, financial, and other qualitative and quantitative factors. Generally, we examine macroeconomic factors (i.e. international economic conditions and industry conditions) and microeconomic factors (i.e. individual company’s financial conditions and company management). The end goal of fundamental analysis is to produce a quantitative value that an investor can compare with a security's current price, thus indicating whether the security is undervalued or overvalued.
Technical Analysis:
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, technical analysis focuses on patterns of price movements, trading signals and various analytical charting tools to evaluate the probability of a security's price to continue along its trend or reverse it. Such trends are believed to occur in securities regardless of the their underlying fundamentals (the factors which determine whether a company or bundle of companies will be profitable in the future).
*Note: For more information on the risks associated with our investment strategies please see TJSinvest's Firm Brochure (Form ADV Part 2A) available at www.adviserinfo.sec.gov