Yesterday I introduced you to the Australian board members of the Albert Park Investors Guild. If you missed that, click here.
Today I’d like to show you an investment strategy that risk-averse investors can live with in good times and in bad. This strategy has been time tested and shown to be remarkably successful by two of our international board members.
Markets go up. Markets go down. They can move a lot. They can move a little — or not at all. Sometimes the stock market will go down for more than a year. This is what’s called a bear market. Or it can enter a bull market, where prices consistently go up.
Recently, the Australian Securities Exchange (ASX) has been trading in a fairly tight range. It closed up 7.6 points yesterday, or .14%, reaching 5518.9.
The chart below shows you the performance of the ASX over the past year. You can see within the red circle that since February stocks have seesawed back and forth in a tight range. The market was at 5445 on 21 February and traded at 5402 on 25 June, with very little volatility in between.
On the other hand the ASX moved up from 4710 on 1 July, 2013 to reach 5440 on 1 November, as indicated by the red arrow. But even during a longer term uptrend (or downtrend), the market ticks higher and lower on a daily basis.
With these variables in mind, how do you go about consistently and securely growing your wealth year after year? How can you make solid gains when the market is flat, or even when it’s falling? How can you protect yourself from market swings? What investments should you hold? And in what proportions?
Mainstream financial advisers will tell you that these daily or weekly shifts shouldn’t really concern you. That’s more the realm of day traders and high risk speculators. As an investor, they say, you should be more concerned with the longer term market trend.
For example, if you were tracking the index as a ‘buy and hold’ investor, you would have made a happy 17% return during the months from July 2013 through October 2013. On the flip side, in just the two months from October 2013 to December 2013, you would have given back 48% of those gains.
This is why bullish advisors tend to do well in a rising market and quite poorly in a falling market. And why bearish advisors have the opposite results, making good gains when the market falls but generally losing when the market rises.
That’s what you’re told to expect when you invest in the stock market. That’s what most brokers will tell you is normal. I don’t know about you, but if that’s ‘normal’ I don’t have the stomach for it.
But what if I told you that these market swings are not nearly as important as you’ve been led to believe? What if I told you that you can make money whether the index is rising OR falling, without making risky bets?
I know I’ve been asking you a lot of questions. But I have one more. If you don’t have all the answers yourself, who can you turn to?
If you’ve been following the DR this week, I think you know my answer.
Connecting with an experienced network of investment experts will save you from having to reinvent the wheel. A wheel they have already perfected. A network with a lengthy, proven track record of success in all types of market conditions.
Now I know that’s a tall claim. And it’s only reasonable you’d like some evidence. Anyone can say they have a winning investment strategy. But only a few can produce the track record to back up that claim.
Since the Albert Park Investors Guild portfolios are new, I can’t hold them up as a long term example. But I am convinced that time will demonstrate their effectiveness. Why? Because our investment philosophy is based on the same principles as some of our most successful board nembers. And their track record speaks volumes.
To be clear, we’re not claiming this track record as our own…yet. But we do know the secrets that have made them so successful. And we can share those with you.
Remember, ‘it’s who you know, not what you know.’ So let’s take a look at two of our International board members now.
Alex Green serves as the Guild’s Asset Allocation expert. And Byron King is our Military Tech and Energy expert.
Both Alex and Byron are listed in the Hulbert Financial Digest honour roll.
From the Wall Street Journal:
‘For the past dozen years, the Hulbert Financial Digest has constructed an annual honor roll of those services that performed better than the average advisor in both the up and down phases of the three previous market cycles. Currently, only 12 have done so. The remainder does well only when the market is going their way. Those who focus on risky small cap growth stocks, for example, are near the top of the performance rankings when the market is rising and near the bottom when the market is falling. The goal isn’t to identify advisors who make the most money at all costs, but rather the ones whom risk-averse investors can live with through thick and thin. Still, it is worth noting that, over the past 15 years, the advisors making it onto each year’s honor roll on average over the subsequent 12 months went on to make 1.2 percentage points more a year than those who didn’t, while nevertheless incurring 25% less risk, as measured by volatility of returns. That is a winning combination.’
The goal of the Hulbert Financial Digest’s honour roll isn’t to identify advisers who make the most money at all costs, but rather to distinguish the ones that risk-averse investors can live with in good times and in bad.
Alex Green comes in at number nine on the honour roll. His investment advice for The Oxford Club has netted an annualised gain of 8.4% since the March 2000 market highs. That’s a massive improvement over the roughly 3% annualised return the index offered over that same period.
Byron King does even better. His advice for Outstanding Investments has yielded an annualised gain of 11% since the market peaked in March 2000.
Imagine if you’d invested $10,000 in March 2000 and matched the index returns of 3%. Compounding your gains monthly, you’d have $15,212 in March 2014.
On the other hand, if you had invested using Byron King’s advice, you would have $46,320. That’s a difference of $31,108!
So what’s the secret to our Board Members’ success? Alex’s reply was simple. He invests in, ‘companies that do all the right things — increase sales, compound earnings at high rates, grow market share, improve operating margins, pay down debt and buy back shares, and post superb returns, regardless of what the economy or stock market is doing.’
Thanks Alex. Excellent advice.
My good mate Dan Denning will have more on the Guild’s international board for you next week.
Tomorrow I’ll dive into a subject that’s got everyone in the office riled up. The sticky hands of the federal government and the future of your superannuation. Or should I say, the country’s superannuation?
If you have any questions or suggestions, send them to firstname.lastname@example.org with the subject line ‘Albert Park Investors Guild’.
Chairman, Albert Park Investors Guild