Investment Philosophy
All of our portfolios are designed with one objective in mind; to maximize the chances of our clients’ success. While we aim for capital appreciation, our investment approach emphasizes downside risk management. Long term returns are only earned by consistently compounding shorter term gains and avoiding big losses. At Varbeco, we don’t view risk as volatility but rather as the risk of permanent capital loss.
One of the most important tenets for successful long term investing is to avoid or limit losses when the markets are declining. This is important because reverse compounding works against you.
Most investors are familiar with the magic of compounding interest but they fail to realize that it works in reverse as well. The damaging power of reverse compounding can be extremely destructive to a portfolio. With a 10% loss, an investor must gain back 12% to get back to even. With a 20% loss, you would need a gain of 25%. As losses become more extreme, so does the reverse compounding. With a 40% loss, you would need a gain of 67% to break even; a 60% loss would require a gain of 150%.
We have found that well diversified portfolios tend to provide less volatile returns over the long term and can help minimize downside risk. However, we believe that a properly diversified portfolio needs to consist of more than just the traditional combination of stocks, bonds, and cash. We construct our portfolios to also include exposure to unconventional, alternative asset classes such as Managed Futures, Macro Global, Hedged Equity, Non-traded REITs, Long/Short Equity, Market Neutral, and Precious Metals.
As an independent firm we have with no proprietary products to promote or sell. We have access to unlimited investment alternatives for constructing true and objective portfolios.
*There is no guarantee that a diversified portfolio will enhance overall returns or out perform a non-diversified portfolio. Diversification does not protect against market risk.
Investment Philosophy
All of our portfolios are designed with one objective in mind; to maximize the chances of our clients’ success. While we aim for capital appreciation, our investment approach emphasizes downside risk management. Long term returns are only earned by consistently compounding shorter term gains and avoiding big losses. At Varbeco, we don’t view risk as volatility but rather as the risk of permanent capital loss.
One of the most important tenets for successful long term investing is to avoid or limit losses when the markets are declining. This is important because reverse compounding works against you.
Most investors are familiar with the magic of compounding interest but they fail to realize that it works in reverse as well. The damaging power of reverse compounding can be extremely destructive to a portfolio. With a 10% loss, an investor must gain back 12% to get back to even. With a 20% loss, you would need a gain of 25%. As losses become more extreme, so does the reverse compounding. With a 40% loss, you would need a gain of 67% to break even; a 60% loss would require a gain of 150%.
We have found that well diversified portfolios tend to provide less volatile returns over the long term and can help minimize downside risk. However, we believe that a properly diversified portfolio needs to consist of more than just the traditional combination of stocks, bonds, and cash. We construct our portfolios to also include exposure to unconventional, alternative asset classes such as Managed Futures, Macro Global, Hedged Equity, Non-traded REITs, Long/Short Equity, Market Neutral, and Precious Metals.
As an independent firm we have with no proprietary products to promote or sell. We have access to unlimited investment alternatives for constructing true and objective portfolios.
*There is no guarantee that a diversified portfolio will enhance overall returns or out perform a non-diversified portfolio. Diversification does not protect against market risk.