How our Tactical Strategies Perform in BOTH Bull AND Bear Markets...
When you retain Turner Capital Investments (TCI) to manage a portion of your financial net worth, it is important to understand the process we use in the selection of equities, the criteria we use for determining how long we hold each equity and the parameters we apply when closing a position. We believe that the more you know about how we work for you, the more you will be able to determine if we are meeting your expectations for capital appreciation and risk mitigation.
The steps below describe the general quant-based approach we use when investing client funds in the stock market.
STEP 1: Determining the Current Market Bias
Our first and most important trading decision is based on the current condition of the overall US market. There are only three possible conditions that can exist in the market using this strategy (Bull, Bear or Neutral):
- Bull Market Trend - The market, as defined by the S&P 500 is considered to be in a bullish trend when the market is trading more than one standard deviation of normal volatility above the 200-day moving average of the SPY (the ETF of the S&P 500).
- Neutral or Transition Market - When the SPY is trading within one standard deviation of normal volatility of the 200-day moving average of the SPY, the market is defined as inside the "Neutral Zone".
- Bear Market Trend - For the market to be considered in a bear mode, the SPY must be trading more than one standard deviation of normal volatility below the 200-day moving average of the SPY.
If the market is in a Bull Market Trend, the goal of each strategy is to be 100% invested in strong, up-trending equities, or as in the case of the Market Directional Index strategy, to be 100% invested in the SPY.
If the market is in a Neutral or Transition condition, no new trades are executed and opportunities to move existing holdings to cash become the priority.
If the market is in a Bear Market Trend, the goal of each strategy is to preserve capital and opportunistically invest in the inverse of the SPY, which is the SH ETF. The exception to this strategy is the Market Directional Index strategy where the goal is to either short the SPY or be 100% invested in the SH.
STEP 2: Assessment of Holdings
This step includes a close inspection of each the current open trades (holdings).
Each holding is reviewed for performance and trend. Trades that are under-performing are considered for removal (close and exit the trade) and trades that are performing as desired are monitored for both upside and downside exit criteria.
All holdings are reviewed from the perspective of, "Is the best use of client capital to continue to stay in this equity, or is there a better equity alternative in this current market?"
If, after this analysis, the decision is to keep the holding, we then review our exit strategy for the position and make adjustments as deemed appropriate by the investment strategy manager.
The proceeds from closed trades are moved to cash and are available for potential investment into new positions according to the Trading Strategy.
STEP 3: Search for the Next Trade
Assuming the market conditions support a new investment, the Manager uses all of the TCI resources (TCI analytics tools, trends, market analysis, staff opinions, etc.) in the search for potential equities to add to our clients' accounts.
Our equity analysis computer programs generate both qualitative and quantitative data that rate, rank and recommend the best equities for the current market condition (bull or bear). We utilize this list as a starting point from which we select only those equities and trades that we believe will give our clients the best opportunity for growth in capital appreciation.
We want you to be completely comfortable with our approach to trading. We encourage our clients to learn as much as possible about our trading style and methodology. We purposely keep our trading methodology as transparent as possible. The more our clients understand the process the more at ease they are with the holdings in their account(s).
STEP 4: The Exit Strategy
We like to say that 'you only make money when you sell a position at a profit'.
As such, the exit strategies are important elements to generating capital appreciation for our clients.
We use a combination of time and price to determine when to exit a position. We always have a 'worst-case', downside exit strategy to handle those instances when a trade moves against us more than our predetermined maximum loss criteria.
As we monitor each holding in our clients' accounts, we make sure that the exit strategy for each holding continues to be valid in light of the market, market segments and pricing trends.
There are times when the risk in the market is too high in comparison to unrealized profits in one or more holdings. When these events occur, we may simply sell those holdings and move the proceeds to cash.
The goal is to remain tactically engaged for our client accounts, constantly monitoring the level of unrealized gains and sensitivity to daily market conditions.
We are NOT buy-and-hold investors. We want to hold on to positions as long as they are making our clients money or we believe the likelihood of near-term profitability is high. When a holding fails to meet this criteria, we exit the position and look for a better replacement.
We are active, rules-based traders of the stock market. Our tactical, disciplined approach is designed to capitalize on market, sector, and equity trends.