Portfolio Management

"Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it ... Simplicity is the ultimate sophistication." - Steve Jobs, clarifying and quoting Leonardo Da Vinci

Investing is simple, but not easy for the expert. Its nearly impossible for the unadvised investor. Find out more in Nick Murray's book Simple Wealth, Inevitable Wealth. We consider this book so essential to shaping your understanding of why you need an advisor to create and manage your portfolio that we gift it to every new client.

Portfolio Management is the heart of how we help you create wealth that can solve financial problems. The essence of the idea is investment in securities, which are:

  • Investments of Money
  • In a common enterprise
  • Where the investor hopes to benefit from the work of others

Solitude will, when acting as a portfolio manager:

  • Calculate the value of each security, and compare it to the price as well as the price of alternatives.
  • Use portfolio theory to design the combinations of securities.
  • Use market analysis to determine risk to each security.
  • Employ financial software to calculate the volatility of the portfolio.
  • Apply risk management techniques to determine active and passive risk controls to control volatility.
  • Discuss the client's needs and wants must aid the selection of financial goals.
  • Determine how to best achieve the goals with the securities that exist in the marketplace.
  • Determine their risk tolerance and emotional history to determine how they will react to price changes, realized and unrealized losses, tax losses, and other stresses facing securities investment.

Time requirements and technical difficulty indicate that this approach is best accomplished by a trained professional, who has continuous access to the accounts, all market tools, and a relentless focus on the goals. The cost of an amateur approach and guesswork is too high.

Our objective is to not only to prevent investor mistakes but avoid investment advisor mistakes as well.

Solitude Financial Services exercises discretionary management of financial accounts using the four elements of a security purchase - asset choice, lot size, timing, and price.

SFS expects discretion on all four, with client agreements that allow exactly that. Why? Simply put, the client is an expert on their goals and risk tolerance, not the choice of securities or portfolio design. Markets move fast, and we must have the freedom to choose opportunities as they occur. They will evaporate before we could get the client on the phone. The time lost explaining what is cheap, why and how the P/E ratio works, why free cash flow matters, the difference between a debenture and a secured bond, or additive risk is simply unproductive. Our time together is better spent gathering information about your needs, goals, financial situation, assessing your risk tolerance (so we know how you may react to market changes), and personal feeling towards the business with which you want to be associated. That continual assessment will dictate the design of the portfolio, using combinations from a tightly monitored set of assets to create the portfolio.

Some advisors make the mistake of letting the client drive investment choices, or calling in with a "pick du jour". The clients later wonder why their portfolio seems to out of synch with the market. The likelihood that a hot stock tip will make a difference is low, and in fact, often introduces unintended consequences.

We welcome questions and involvement about the businesses we choose to be the stewards of your money. We can certainly consider a specific asset or two with which you have a special connection. But our practice will be most effective if we work with clients who understand that the security choices, with few exceptions, are best left to us.

SFS does not trade stocks. SFS will invest in businesses to create wealth over time to achieve client goals.

We want to invest in businesses, not trade securities. Some great assets are like a three year old: fun, but you have to watch them like a hawk. We need "adults" that don't need that type of supervision. Warren Buffet said we should buy securities we would hold even if the markets were closed for 10 years. So we will. By avoiding frequent trades, we will have the time to focus on planning. An added benefit is that a high number of trades tends to reduce, not improve, performance.