Controlling Risk

In our view, the best results are achieved by focusing on what might happen, not on what is expected to happen nor on what we want to happen.

Thus we focus on understanding how assets behave and relate to each other under different scenarios. This understanding enables us to manage risk by structuring broadly diversified portfolios designed to minimize the risk that all of the components will decline at the same time. We also employ other strategies to provide additional diversification and risk-mitigation benefits.

Quantitative Analysis
We employ the same quantitative analytical tools that institutional money managers use, adapting these techniques to meet the needs of individual investors.

For example, using computational modeling tools, we are able to understand how a prospective portfolio would likely behave were significant historical events to recur. This helps us to assess how that portfolio would be likely to react to analogous events in the future.

Other tools we use include:

• A measure known as Value at Risk (VaR), which helps us assess potential “worst-case” movements in a portfolio’s value in a specified time period under “normal” conditions.
• A problem-solving technique called Monte Carlo analysis, which approximates the probability of various outcomes by running thousands of trial runs of an investment strategy. This technique gives insight into the range and likelihood of potential outcomes for a given portfolio.

Qualitative Analysis

In addition to quantitative analysis, we assess each fund or pool in which we invest client money in terms of strategy, integrity and stability. We examine each investment management firm and the people behind it.

For example, we analyze a company’s back office and operations, evaluating whether the firm functions effectively and efficiently. Similarly, we obtain background reports and check the references of key individuals to ensure that every investment manager meets our criteria and has the potential to help our clients meet their goals.