Peattie Capital believes first and foremost in protecting capital. The majority of our clients define risk as losing principal and for them we take a somewhat flexible and opportunistic approach which, depending on the appropriateness and suitability for a given client, might include raising and holding cash, shorting, boxing, and using Exchange Traded Funds or puts and calls to hedge and mitigate risk.
We describe the benefits and risks of these techniques in detail, and ensure that the client knows why they are an important part of a wealth management program before utilizing them
We also have accounts whose goal is to outperform an index, in which case we adapt a slightly different approach and stay, more or less, fully invested.
For other accounts we are one of several managers in the markets, and the goal is to outperform the other managers, without losing money.
Our experience with asset allocation is that it is unsuccessful in protecting wealth during major market downturns, because correlations all go to one. In 2000-2003 there were a couple places to go within equities, but not so in 2008-2009 when everything traded down together. To protect wealth, you either had to have a big fixed income or gold allocation or move to cash.
We believe that, in an increasingly interdependent and interconnected world, with enormous pools of money controlled by ever larger hedge funds, investment firms, and electronic trading that this phenomenon will continue. Our conclusion is that a broadly diversified asset allocation program will, in the future, perform no better than the markets: up, down, or sideways.
Important Reading: Article in the Financial Times by Anousha Sakoui and Izabella Kaminska
"Stock picks tough as asset paths correlate" (requires free registration)
We counter this trend by getting smaller, i.e. individual accounts, and owning things we know well, in industries we favor. And we overlay that with flexibility, and the ability to hedge. We tend to have concentrated portfolios with typically no more than 25 or so positions, and, while we limit how much exposure we have to a given company, we do not have industry limits.
We believe the time is right for a small, personalized and focused approach.