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Methodology
The Financia Capital methodology is decidedly different from that of most money management firms, who tend to utilize fairly static “portfolio theory” asset allocation models combined with fairly active stock picking strategies based on “bottom-up” fundamental analysis and/or technical analysis.
We believe that our clients are better served by a top-down, big-picture approach designed to keep them fully invested in a semi-passive well-diversified portfolio of stocks, taking defensive measures to protect capital only during relatively rare periods of significant downside volatility (bear markets).
Our methodology rests on three broad principles:
1. History demonstrates that stocks are by far the best-performing asset class over long periods of time - largely because stocks offer something that no other form of investment can, ownership of inherently-flexible companies that have the capacity to adapt to changing market conditions (bonds, real estate, and gold cannot adapt when economic cirumstances change - companies can).
2. Economics establishes that changes in the supply and demand relationship determine the future direction of prices in any well-regulated free market, regardless of asset class.
3. Behavioral finance provides strong evidence that the “hard wiring” of the human brain is poorly suited to modern financial markets, causing investors to make poor decisions based on basic instincts (“safety in numbers,” “fear of heights,” “loss aversion,” “pride and regret,” etc.)... and hence the value of contrarian analysis.
Over the years and as a result of extensive (and always ongoing) research, we have identified several systems of measurement for investor sentiment, equity valuations, and overall macroeconomic conditions that – in combination – have proven to be reliable indicators of the overall health and future direction of global equity markets. We believe that our disciplined approach to evaluating and monitoring these indicators is crucial to keeping our investors on the right side of the market and determining which categories are likely to outperform.
The relative importance we assign to each of these indicators is proprietary, but we are happy to share a partial list (with source links) for those who wish to learn more about some of the data that inform our investment decisions. (Please note that some of these sites require a subscription to view.)
>>Learn more about Financia Capital’s sentiment indicators…
>>Learn more about Financia Capital’s valuation indicators…
>>Learn more about Financia Capital’s macroeconomic indicators…
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