HCM Portfolio Management Philosophy

As we have mentioned, there are two overriding themes to our investment approach:

1. "Own the best and ignore the rest" in terms of stock and asset class selection
2. Manage risk at all times

We strongly believe that risk management strategies should be at least a part of every investor’s portfolio.  According to Ned Davis Research, the average bear market(1) since 1901 produced losses on the DJIA of -30.8%. Thus, we are confident that, if given a choice, few investors would want to intentionally keep their portfolio fully invested in stocks during severe market declines.  By reducing portfolio exposures whenever our managers deem risk levels to be high, our goal is to keep clients’ exposure to risk “in-line” with prevailing market conditions at all times. 

Next, we believe that it is equally important to perform well in a positive market environments or to "make hay while the sun shines."  Toward this end, we strive to keep portfolios focused on the top rated(2) asset classes, stocks, sectors, countries, and industries.

This differs dramatically from the traditional asset allocation approach of diversifying assets evenly across asset classes.  We have one simple question of this traditional approach to asset allocation: Why would you want to own any stock, index, country, sector, or asset class that is under-performing? 

HCM’s Three Steps to Successful Investing

Step One:  Identify the “Big Picture”

Successful Investing starts with identifying the market’s environment in terms of risk versus reward.  This is critical to success over the long term because different environments require different strategies. In short, it doesn't make much sense to use the same aggressive strategy that is successful in a positive market during a down cycle in the market.  We believe portfolios must have the flexibility to adapt to the current environment. 

Step Two:  Focus on the Leaders – The Adaptive Leadership Strategy

We feel it is important to keep portfolios focused on the market’s leaders.  Our proprietary Top Stocks Strategy and Adaptive Leadership System are disciplined selection methods designed to keep portfolios focused on the top performing(2) areas of the market at all times.

Step Three:  Manage Risk (Stay “In-Line” with Conditions)

The final step in successful portfolio management is to “know when to hold ‘em and know when to fold ‘em.”  While there are never ANY guarantees in investing and gains are never assured, our disciplined approach to managing risk is designed to keep portfolios “in-tune” with the overall condition of the market at all times.  We utilize a graduated approach when adjusting our exposure to market risk based on our proprietary Model of Models Risk Management System.  Click here for more details about managing risk.

(2) As defined by HCM's Adaptive Leadership and performance rating systems.