Investment Management
Investment Philosophy
Our investment philosophy incorporates many of the investing principles that are currently being taught in our nation’s top Business Schools. The following reflects the investment philosophy and beliefs of Pacific Tides Wealth Management:
- Importance of Risk Control**
Our goal is not superior investment performance but superior performance with less-than-commensurate risk. Above-average gains in good times are not necessarily proof of a manager's skill; it takes superior performance in bad times to prove that those good-time gains were earned through skill, not simply the acceptance of above average risk. Thus, rather than merely searching for prospective profits, we place the highest priority on preventing losses. It is our overriding belief that, especially in the opportunistic markets in which we work, if we avoid the losers, the winners will take care of themselves.
- Emphasis on Consistency
Oscillating between top-quartile results in good years and bottom-quartile results in bad years is not acceptable to us. It is our belief that a superior record is best built on a high batting average rather than a mix of brilliant successes and dismal failures.
- The Importance of Asset Allocation
The theory states that the construction of an investment portfolio as a whole is more important than individual security selection. The appropriate investment allocation across asset classes (e.g., stocks, bonds, cash) will have far more influence on long-term portfolio results than the selection of individual securities.
- Expenses Matter
Investment costs are inevitable, but minimization of investment costs and taxes can enhance long-term performance.
- Data Driven Decisions are Best
Investing is a process that requires constant decision making. We go to great lengths to apply the power of computer analysis across large data sets whenever we can as it helps us arrive at better decisions. In addition, it tends to guard against the unconscious bias that can creep into the decision-making process if left unchecked.
Investment Process
We manage money for our clients as a fiduciary. A fiduciary is a person or firm who acts for clients and is required to put their best interests first at all times. We are a fee-only adviser and do not earn any commissions by trading in your account. We partner with Fidelity Investments to act as custodian and house all of our clients' assets and prepare their monthly statements
- Initial Client Discovery Meetings
Our early meetings with clients allow us to develop a complete understanding of their specific financial, personal, and life-style goals. We also gauge their ability to tolerate risk, and determine their time horizon, income requirements, tax status, and any other special circumstances, including exposure to Alternative Minimum Tax (AMT). We often communicate with their trusted advisers, such as accountants or attorneys, to further our understanding of the client’s particular situation.
- Portfolio Construction – Asset Allocation
Once we have an understanding of our client’s needs and risk tolerance, we begin building a customized portfolio for them by deciding what percentage of the portfolio will be invested in the different asset classes. Numerous academic studies have determined that asset allocation decisions explain 80 – 100% of a portfolio’s return. Pacific Tides partners with a leading quantitative research firm in California, who employ PhD’s in Math, Computer Science and Economics, to utilize their asset allocation modeling for our clients. Their models help us construct efficient portfolios, the optimal collection of assets which maximize the return for a given level of risk. Unlike other Advisors, we utilize up to 22 different asset classes for diversification. This is the most important decision in investing which will determine how well your portfolio performs.
- Portfolio Construction – Security Selection
After we have selected the asset classes we want to invest in, we search for exchange traded funds (ETF) or mutual funds to give our clients exposure to the asset class. Our default choice is always an ETF because of their low costs. However, if we find an actively managed mutual fund that has shown the ability to outperform their index over 3- 5 year time frame after fees, we will consider them for investment.
- Portfolio Construction – Application of PSD Algorithm for Risk-Reduction
With each security we select, we apply our Portfolio Smoke Detector (PSD) to the security to see if it is safe at this time for investment. If we get a buy signal, we make the investment. If we get a sell signal, we put the money we were going to invest in this security into a money market mutual fund until the PSD technology gives us a buy signal on the security. This is key to our risk control strategy. We encourage you to read all about our Portfolio Smoke Detector under the Our Services tab on this website. We believe this gives us a strong competitive advantage when it comes to risk-adjusted performance.
- Monitor and Rebalance
Each month, we review and adjust our clients’ portfolios to account for: rebalancing, changes in signals on individual investments from our Portfolio Smoke Detector, and changes in Asset Allocation generated by the quantitative research firm who supplies our asset allocation models.
**Certain risks exist with any type of investment and should be considered carefully before making any investment decisions. Keep in mind that current and historical facts may not be indicative of future results.