Dude, Boost your Portfolio Performance!

If everyone is riding the same wave, why do some surfers go faster than others?  Differences in equipment, physical fitness, and skill can give the boost surfers need to gain speed.  Small advantages can add up quickly.  Similarly, portfolio managers in the equity markets all face a level-playing field.  In the U.S. alone, there are almost 7,000 publically traded companies.  Intuitively, equity managers who can consistently identify a handful of above average stocks and go long while shorting a few mediocre stocks should be able to consistently beat the market.  So why do so many funds underperform their benchmarks?  We feel it is important to keep the big picture in mind, or you might miss catching the wave altogether.  Here are three high-level areas for potential performance advantages:

  1. Use of structure or systemized processes – a short-term hot streak can end quickly without processes to identify the right securities and properly timing entry and exit points for those positions.
  2. Evaluate quality accurately – managers can be blindsided if they are not consistently evaluating portfolio holdings from a purely objective eye; long positions can go south or short positions can jump unexpectedly.
  3. Keep Fees Low – excessive trading commissions and wide bid/ask pricing spreads can chisel away at portfolios and quickly cause good managers to underperform.

Portfolio managers all face the same economic and market conditions.  Pawleys Capital Management focuses on building portfolios that will perform well in a myriad of environments.  Our processes are systematic, we work hard to properly assess the quality of holdings, and we keep costs low.  Surf’s up!

© 2014-2015 Pawleys Capital Management, LLC. All rights reserved.

Thoughts from Pawleys on Investment Strategy

Sometimes the noise of the markets can be a distraction from basic fundamentals. The best strategy to cushion both stocks and bonds (including mutual funds) is to focus on quality. For fixed income (and we do a fair amount of tax-free municipal bonds, especially within South Carolina), the highest rated bonds will be less volatile when interest rates rise. When the economy slows, corporations with consistent earnings and little debt tend to be less volatile. Look for consistency and quality, and avoid swinging for the fences with low-quality momentum stocks and poorly rated bonds, because you will likely get burned. Having a plan can help you stay on track, especially when news and political events start to cause anxiety in an otherwise healthy market. Random, unplanned changes rarely pay off. Remove low quality investments and trim over-weighted areas in your portfolio. Many investors lost 50, 60, even 70% during 2008 because they forgot to rebalance and held lower quality investments. A well balanced, 50/50 portfolio of high quality investments would have dropped approximately 15% that year. Adding structure sounds like an obvious guideline, but because most investments are sold on a commission-basis, many people end up with a random collection of investments that don’t necessarily fit together. Like any sports team, a solid portfolio is constructed of individual parts that work well together as a whole. Lastly, news sources can generate lots of hype and create worry…but investing should be fun. Having our local schools and parks operate effectively would not be possible without the debt issued by municipalities, which enables investors to enjoy a stream of tax-free income. The creation of capital through the equity markets is what allows innovative companies to grow and expand, while investors reap the benefit of growing capital and even dividend income along the way. Enjoy the process and have fun!

© 2014 Pawleys Investment Advisors, LLC. All rights reserved.

Five Portfolio Construction Basics from Pawleys

Here are five quick portfolio construction basics from Pawleys Investment Advisors that can really supercharge your performance results:

Focus on Quality – highly rated bonds, stock of companies with little debt and consistent earnings, funds with solid long-term track records.

Have a Plan – avoid making random changes – it will almost always hurt your return and add to portfolio volatility.

Rebalance – sell low quality or over-weighted holdings when you need to raise cash, buy high quality investments in under-weighted areas when adding cash, and review at least annually.

Add Structure – avoid being a “collector” of various investments – instead choose an asset allocation model and build a well-diversified portfolio of investment that complement each other and work well together.

Enjoy the Process – have fun and don’t let hyped-up news stories about the economy and stock market cause you to question your well-laid plans .

© 2014 Pawleys Investment Advisors, LLC. All rights reserved.