Asset management involves three disciplines
 | Asset Allocation - dividing up the assets among various
investment types such as stocks, bonds, real estate, currency, oil,
gold, etc. |
| Asset Evaluation - picking the right stocks, picking the best
bonds, etc. |
| Asset Preservation - making sure we preserve assets when times
are tough |
Stock Picking Disciplines (how we pick the winning stocks)
- At WFS we do our own research. WFS gets ideas for stocks from many
sources including:
 | newspapers |
| other experts advice |
| paid publication |
| stock screeners |
Then we begin to put each stock through the wringer to see if it stands
up to our rigorous tests.
- The first test is a test of Fundamentals. We look at each
stocks fundamentals to see how it stacks up. For people unfamiliar
with the term "fundamentals", it simply means looking at the company's
accounting statements. We sift through the Income Statement, the
Balance Sheet, and the Cash Flow statements. We calculate ratios
to be compare companies against each other. We also look at the
company's quarterly statements and SEC filings.
- The second test (assuming the new stock passed the fundamentals
test) is to check the company's Sector. Perhaps this company we
are investigating is growing, but not as quick as some of it's
competitors? Perhaps it has better long or short term prospects?
Perhaps this company is too small? Or perhaps it's too big?
- The third test is to check the company's Technical indicators.
Technical indicators are charts. We look at various aspects of
each chart to see trends. Perhaps the stock we are investigating
is a great stock, but is in a down-trend? We should try to find
out why. We look at patterns, we look at Relative Strength,
Bolinger Bands, Volatility, Momentum, Volume+, and other technical
indicators to see if now is a good time to buy stock.
- Finally, we look at the overall market. If the overall market
is falling, nearly 75% of all stocks will also fall (although not
proportionally). If the overall market is rising, nearly 80% of
stocks will rise (but some will rise faster and some slower.)
If the stock passes all these tests, then we buy it for those portfolios
where this stock fits into their risk profile.
Bond Picking Disciplines
WFS does our own research. We utilize tools made specifically for
Fidelity bond traders to extensively search the market for the best bond deals
in every category.
- Creating a ladder of bond maturities is probably the best way to get
into the bond market. WFS frequently creates bond ladders for our
customers to ensure that as short bonds mature we can take advantage of
higher rates on new bonds.
- For each bond and for the overall portfolio, we check the "duration"
which is a measure of the change in the price of the bond compared to a
change in market interest rates. This gives us an idea of the
"sensitivity" of each particular bond.
- We also check the "yield curve". This is a chart which plots the
interest rates in the marketplace over time. The shape of the yield
curve can tell us many important things about stocks and bonds.
Normally, we like to see a rising yield curve. An inverted curve is a
signal of impending recession. There are yield curves for each
category and grade of bonds, government, muni, and corporates.
- Buying corporate bonds leads us down the same "fundamental"
investigation as buying stock. We must check all the fundamental,
accounting ratios and indicators to check financial stability. Also,
we like to look at any potential for a rating change by Standard and Poors
or Moody's.
- Finally, we search for the highest rated bonds with the best YTM (Yield
to Maturity).
Asset Preservation
This is the part of asset management that is frequently overlooked.
When the markets are difficult and the economy is sliding into recession, rather
than just sit there and take a BEATING, we believe we can side-step the decline
and get back into the market at a better time.
Too many investors just "sat-tight" as the stock market was plunging
from Mar 2000 all the until Mar 2003. Losses were huge.
After a couple months of softening, a declining trend appeared along
with an inverted "yield curve". These were flashing warning
signals, red flags.
We believe in listening to the warning signs. We will take our
customers who are in risk categories C, D, and E down in risk, by
adjusting their holdings into more conservative investments in the A,
and B category. If you are not familiar with these categories,
click here for risk information: risk
information
This will preserve assets for a better opportunity.
|
 now
"that" takes discipline |
