Just as everybody likes to think about the big winners, people tend to want to forget the losers. But we really focus on a concept we call “winning by not losing.” If we can protect you during those times of sell-off, you don’t need as much when times are good to get you to the return pattern you want.
One of the things we have arrived at is this concept of upside/downside capture. It’s not new, but it’s gaining currency among investors today. And what this means is measuring how much you rise when markets rise, and also how much you fall—or don’t fall, importantly—when markets fall. And we target something like a 90/70 upside/downside ratio—which means that, when markets are up by about 10 percent, we would expect to be up 9. But importantly, when markets are down by 10, we would expect to only be down by 7.
Think about it this way: The math is cruel. If the market is down by 50 percent, you need 100 percent return just to get back to even, where you started. So if we can provide some protection in those inevitable sell-offs, you don’t need the full ride on the way back. It’s maybe not as glamorous a way of investing, but sometimes boring is beautiful.
And importantly, this comes with a psychological benefit as well. Because while we don’t like to think about those events in retrospect, as they are going on, we often react very emotionally to losses and the fear of losing more money. That’s when people make poor decisions like pulling out of the market at the bottom, locking in those losses and really causing themselves a great deal of financial pain. So if we can help people with that emotional side, as well as provide a smoother pattern of returns and higher returns over time, we think we are helping clients get to their goals more effectively.