SOUND PHILOSOPHY

DYNAMIC INVESTING

Dynamic investing requires an acute knowledge of market stages. This is where research capabilities are most important. Being able to correctly recognize market risks is the key to being able to dynamically invest. Having a good idea of market risks and stages, you can begin to plan your portfolio strategy to maximize returns while minimizing risk. If you have a very good sense that market risks are heavily weighted toward the downside, you can take nearly all the systemic risk out of your portfolio by implementing hedging. On the other hand, if you believe there are minimal downside risks and tremendous upside opportunities you might enhance your long portfolio with leverage or overweighting higher beta positions. 
 

CONVICTION

As long-term investors, we seek to be fully invested at all times – cash is not a long-term investment. Most investment advisors, brokers and mutual funds will over-diversify because of a lack of conviction. Over-diversification is sold as a benefit of diversifying risk (risk of broker or portfolio manager mistakes), but in reality you end up diversifying returns and turning the portfolio into an index fund (at best). ACM believes in limiting the number of positions to 25 or fewer (depending on the strategy). That way we gain some diversification but are forced to put our best ideas in each portfolio.

 
PROTECTION

Protection comes from conviction, being willing to act on knowledge and analysis.  It also means developing strategies that go beyond traditional investing.  ACM transforms "buy and hold" into "buy and mitigate". 

While we seek to identify the best businesses in the best industries, finding companies that will deliver growing wealth well beyond the intermediate term, we realize that company stock prices are not islands. Stocks operate in the murky sea of systemic valuations. 

We believe that markets operate much like stock price movements described by the Merton Model (or Mixture Model). This means that stock prices will be subject to periods of systemic jumps (both higher and lower) and periods of diffusive movements. This model of operation presents opportunities for long-term investors to put into action the most basic principles of investing - buying low and selling high. 

Under the "buy and hold" method of investment, portfolio managers simply ride out any systemic storm, confident that the companies they own will survive and thrive. All that is required is patience. But this misses a strategic opportunity to enhance performance, and increase alpha. 

ACM's "buy and mitigate" strategy captures the systemic opportunity. By mitigating client portfolios, ACM sells stock near the top of the market to purchase hedges. Near the bottom, the hedges are sold and the funds are used to buy quality companies at firesale prices. In the meantime, the hedges nearly balance the declines in long positions (the companies we want to own over the long-term) keeping the overall portfolio value near constant. The result is a massive increase in alpha, a successful application of "buy low, sell high", and very happy clients.