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Investment
Philosophy
Every
security has a level of risk we
assume when investing in that
security. Risk is often, but not
always, correlated with potential
reward. Over the long term, how
we avoid risk can be more
important to our returns than how
we chase rewards. If a portfolio
drops 20%, it will have to grow
25% just to break even. If a
portfolio drops 50%, we need to
double the portfolio to get back
to square one. This being the
case, an investment that has an
equal potential to rise or fall
the same amount is not an
investment worth owning. The key
to successful investing is to
find investments whose reward
potential is greater than their
risk.
There
are literally thousands of Wall
Street analysts ready to tell us
the potential reward of their
favorite stocks. There is far
less research and intelligence
available discussing the
potential risks of those
investments. This is what the
Risk Aware Management
Program attempts to address.
With multiple risk discovery and
risk reduction techniques, we
attempt to stack the deck in
favor of reward with reduced
risk. Sometimes that will mean
that we miss the latest trend.
This suits us just
fine.
The
Risk Aware Management
Program measures the markets'
potential through several
technical indicators for risk and
potential reward and makes
strategic asset allocations based
on that macro view. Then, we
measure each prospective
investment's risk/reward ratio
and makes individual trading
decisions based on fundamental,
technical and subjective
criteria.
Investment
Objectives
In
all cases, the investment
objectives of an account are
determined by the client's
individual circumstances, needs
and goals. Therefore, the Risk
Aware Management Program is a
controlling philosophy rather
than a specific portfolio. The
specific rate of return we aim
for is therefore established by
the client.
Investment
Strategy
The
process begins with a broad
analysis of the equity and fixed
income markets, searching for
realistic value within each. A
broad array of technical
indicators are utilized to detect
irrational optimism or irrational
pessimism in market psychology.
Meanwhile, we examine bond market
trends for clues to relative
value within the yield curve,
supply/demand trends in the
Treasury markets and movement of
capital between bond classes and
maturities. The result of this
research allows us to make
reasonable asset allocation
decisions between stocks, bonds,
cash and other assets.
Then
we apply a multilayered
risk/reward analysis of the
universe of thousands of equities
and fixed-income securities.
These layers include:
Social
Research
Screening
-
allows
us to examine over 3,500
companies on well over a dozen
social issues that have a
potential impact on the company's
bottom line. By seeking the most
responsibly managed companies, we
seek to avoid unnecessary event
risks, such as liability
problems, costly strikes and
criminal penalties.
"Worst-Case
Scenario"
Analysis
-
attempts
to quantify the worst that can
happen with any given security.
If we can't define the worst-case
scenario, we will likely avoid
the security. This disqualifies
many mortgage and interest-rate
derivative securities common in
the marketplace today. This also
disqualifies most companies whose
only asset appears to be an
exciting story.
Technical
Analysis
-
attempts
to measure the direction and
momentum of price changes
of securities and markets. We
seek out securities that appear
to have strong trends with
considerable relative strength.
We also try to find deteriorated
trends among the securities
currently owned.
Fundamental
Analysis
-
Our
fundamental analysis, (the
examination of a company's
financials) differs from most of
Wall Street in that we emphasize
concrete existing earnings, book
value and balance sheet strength.
Most analysts make a living by
attempting to guess what the
future profits of a company will
be. Academic research now
suggests that this guessing game
itself moves markets, without
necessarily having any
relationship with the real world
operations of companies.
Following these kinds of trends
can work for a time, but in the
long run Wall Street will always
follow what happens on Main
Street. Guesswork and fantasy
will always eventually defer to
reality.
Reality
Check
Discipline
-
is
merely the discipline of taking
the results of these other
measures and asking a simple
question: What real world
consideration will drive the
price of this security up or give
us a reasonable return? If
the technicals and fundamentals
look great on paper, but a common
sense rationale for growth can't
be understood, we don't buy.
One
Secret Weapon: Index Linked
Notes
Index-linked
notes
are short-term corporate bonds
with interest payments that are
linked to performance of an
underlying stock index. If the
stock index goes up by maturity
of the note, holders receive a
rate of return comparable to the
underlying stock
index (assuming the issuer
of the note meets it's financial
obligations). If the stock index
goes down, holders will receive
the principal of the note at
maturity. This enables us to
expose a significant portion of
the portfolio to equity market
growth potential and the
principal protection of a bond
simultaneously.
Using
extensive due diligence on
existing index-linked notes
trading today, we calculate what
each note would yield under
different stock index returns
scenarios. By comparing this
information with market prices,
further discounts to real value
are captured to obtain a
favorable risk/reward ratio for a
significant piece of the
portfolio.
Real
World Results
Beginning
August 2000, Financial
West Group,
Inc.'s
RIA Department has calculated the
investment results of all
fee-based accounts managed under
this program. The same accounts'
performance was also manually
calculated back to September
1997. The results of been very
gratifying so far. Since
inception our composite
portfolios, net of all fees and
expenses, have grown at a pace of
6.75% per year, outpacing the
S&P 500 (growth of 3.39% per
year) and the NASDAQ (growth of
3.34% per year) over the same
period. We've achieved this
result with accepting less of the
risk (volatility) of the market,
as measured by Standard Deviation
of monthly returns. We can't
promise that we can keep this up
because past performance is not
necessarily indicative of future
results and the future is nothing
if not uncertain. However, we
feel confident in our ability to
manage your portfolio
wisely.
All
accounts managed under the
Risk Aware Management
Program receive quarterly
statements and comprehensive due
diligence by Financial
West
Group,Inc.'s
RIA department at expense levels
very competitive with "wrap fee"
investment management programs.
Fees are negotiable for accounts
above $50,000. Below $50,000, a
modified version of the program
is available on a commission
basis.
This
program offers these additional
benefits to you:
- The
Program can be customized to
your financial and social
issue preferences.
- The
Program can be managed to
reduce the amount of capital
gains taxes you pay each
year.
- You
receive quarterly performance
reporting on your portfolio,
letting you know how your
investments are performing
versus standard
benchmarks.
- Financial
West Group, Inc. also does
independent risk/return
analysis on your portfolios on
a quarterly basis as a check
and balance of your portfolio
performance.
- These
portfolios are traded on your
behalf according to your goals
and guidelines, so you don't
miss an opportunity if you're
away on vacation or out of
contact with your
broker.
All
equity trading programs are
carried at National Financial
Services, a wholly owned and
fully guaranteed subsidiary of
Fidelity Investments, LLC. NFS
provides clients with $500,000 of
protection through Securities
Investors Protection
Corporation (SIPC)
and up to $50 million of
supplemental insurance
protection. (However, insurance
and SIPC protection do not remove
market risk)
Explanation
of Performance Data
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to top)
These
time weighted performance results
have been prepared in accordance
with for the period of 8/31/00
through 12/31/2006 for all RIA
fee-based accounts under Richard
Torgerson's direct management
through the "Program VII" RIA
management program offered
through Financial West Group,
Inc. Form ADV of our filing to
the SEC is available upon
request.
Additional investment returns
from 9/30/97 through 8/31/00 were
calculated using time-weighted
calculation methods for the same
accounts that were active as
commission accounts prior to
entering FWG's fee based programs
during 2000. All results are net
of fees and
commissions.
4th
Quarter - reports the
growth of all portfolios under
Richard Torgerson's fee-based,
discretionary management from
9/30/2006 through 12/31/2006.
Last 12 Months - reports
the growth of all portfolios
under Richard Torgerson's
fee-based, discretionary
management from 12/31/2005
through 12/31/2006.
Last 2 Years - reports the
growth of all portfolios under
Richard Torgerson's fee-based,
discretionary management
from 12/31/2004
through 12/31/2006.
Last 3 Years - reports the
growth of all portfolios under
Richard Torgerson'sÂ
fee-based, discretionary
management from 12/31/2004
through 12/31/2006.
Since Inception - reports
the growth of all portfolios
under Richard Torgerson's
fee-based, discretionary
management from 8/31/2000 through
12/31/2006, as well as the same
portfolios that were active as
commission accounts from
9/30/1997 through 8/31/2000. The
fable "annualizes" these figures
to report what annual growth one
must have in order to equal the
growth of these accounts in the
indicated time period.
3 yr. Standard Deviation -
is a Volatility Measure of the 3
year monthly performance of the
portfolios and the indices from
12/31/2003 through
12/31/2006..
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Past
performance is not necessarily
indicative of future results.
Further, nothing on this page
should be construed as an offer
to buy or sell any security. Such
recommendations can only be made
after personal consultation of
your financial needs and
objectives.
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