1. Portfolio Risk-Management: Adjust allocation relative to the prevailing “Margin-of-Safety”.
Investors must appreciate that the price level of the stock market, and thus RAM's Prudent-Growth portfolio, is simply the price investors will pay for its future earnings and cash flow. Owning a portfolio of stocks of great companies as outlined below in part 2 of our investment process does not guarantee investment success especially in the short and intermediate terms.
While investors may convince themselves that they are long-term investors, the evidence is abundant that when their investments are made during periods of overvaluation for the stock market they become sellers when the market collapses to fair or under valuation levels.As a result the evidence, as depicted below, shows investors on average underperform the long-term returns of the market which also demonstrates the lack of value-added by Wall Street’s brokerage and financial advisory products and services.
The following chart depicts how overbullish and overbearish markets play on the prospects for portfolio returns and thus investor success. Simply put, typically the earnings for a stock or portfolio has a long-term trendline around which it trades. At times, due to many factors, valuations have a tendency to "pull forward" or "push out" the returns associated with the secular earnings trend. This makes the timing of purchases and sales critical in the success or failure of investing as the higher the price an investor pays the lower the return the investor can expect to earn and vice versa.
RAM increases its allocation to our “Growth” stock portfolio created in step 2 as the market enters the valuation range offering a ‘Margin-of-Safety" and reduces this allocation as it enters the zone offering little or no margin of safety.
3. Continuously and opportunistically execute RAM’s “Prudent-Growth” investment-process discipline.
During RAM’s 20-plus years it has demonstrated the ability to navigate the last two decades of market volatility and generate superior and less volatile long-term returns. One key to investing is that, especially during retirement, the balance is available in the event of a significant and prolonged bear market. While there are no guarantees, the evidence suggests RAM’s Prudent-Growth investment process may offer the best outcome for investors during the next two decades for which returns are expected to be below historical norms.
The evidence of RAM's risk-management success adhering to its disciplined Prudent-Growth investment process can be found in the two charts below. They show for the S&P 500 Index since 1995 that, for any given month, the greater the prevailing “stock-market risk” the lower the subsequent 10-year return, and the greater the interim loss. Note that for the RAM Prudent-Growth Portfolio* returns have been superior and the interim losses less relative to the S&P 500 in spite of the greater prevailing stock-market risk at the time of investment.
In spite of the evidence depicted in the above charts that future portfolio returns are inversely correlated to prevailing stock-market risk, Wall Street’s investment offerings have continued to promote "stay-fully-invested" approaches that, we believe, exposes their clients to continued periods of low returns and significant periodic losses while all the while feasting on commissions, management fees, performance fees and generating hidden additional expenses.
We believe RAM's Prudent-Growth investment process is of particular importance to investors who, while wanting portfolio growth in the long run, also desire a preservation feature that strives to reduce losses in the event of inevitable and significant stock-market declines. Furthermore we believe this disciplined investment process also allows for available capital when investment opportunities avail themselves during periods of low stock-market risk that often occur during bear-market bottoms.
Why our investment style is as relevant today as it was at our founding 20 years ago...
Unfortunately for investors we currently believe the risk in the stock market has not been reduced in spite of the poor returns for the average investors over the 16 years and two 50% market crashes. If, as the probabilities favor, a reversion to the ‘norm’ occurs during the next decade, see chart below, then investors will be subjected to continued volatility, disappointing returns, and spectacular declines similar to those experienced during the preceding 20 years.
We believe RAM's Prudent-Growth* style will continue to offer the opportunity for reasonable returns as the transition to a more attractive risk/reward environment for investing presents itself. The only alternative for non-RAM investors seeking to avoid significant losses is to sit on the sidelines and generate little to no returns for what may be many years until more favorable risk/reward opportunities return.
Please take a moment to peruse the information provided with this site and determine if our investment management process is right for you.
* DISCLOSURE
Past performance is not indicative of future results.
Under no circumstances should the information contained herein be used or considered as an offer to sell, or a solicitation of an offer to purchase, any security or investment service. The information presented herein is presented in summary form and is, therefore, subject to qualification and further explanation.
A Single Managed Account (SMA) is an actively managed portfolio. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. The SMA may purchase ETFs. The risks and volatility of these investments may be magnified as they may include leverage, which magnifies the changes in the value of the ETF or Underlying Fund. The SMA will incur a loss as a result of a short position if the price of the short position instrument increases in value between the date of the short position sale and the date on which the SMA purchases an offsetting position. The SMA’s losses are potentially unlimited in a short position transaction. A higher portfolio turnover will result in higher transaction and brokerage costs.
Investors should carefully consider the investment objectives, risks, charges and expenses of an SMA account offered by RAM Capital Management LLC. Any performance data quoted here represents past performance. Current and future performance may be lower or higher than that experienced in the past. Investment return and principal value will fluctuate, so that SMA accounts, when closed, may be worth more or less than their original cost. Past performance is no guarantee of future results.
RAM Capital Management LLC does not guarantee the accuracy or completeness of information posted on its site or within its reports, nor does it assume any liability for any loss that may result from reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice and are for general information only.
The performance shown for RAM in any chart is for a single-managed account (SMA) managed on a fully-discretionary basis by RAM Capital Management LLC (RCM) and that adheres fully to RCM’s investment process and portfolio execution. In some cases, due to the modest size of the account or client restrictions placed on the account, an SMA account’s performance may vary.
For the performance of the Prudent-Growth Portfolio the past performance for January 1, 1996 to September 30, 2010 is for the RAM Capital L.P fund. The prior performance is net of management fees (1% per annum), and net of other expenses. Also prior performance does not include the effect of the LP’s performance fee, which does not apply to SMA’s. On October 1, 2010 the partnership was converted to, and it’s performance ported to, a mutual fund adhering to the Investment Companies Act of 1940 and regulated by the SEC. Past performance since the conversion are net of management fees (1%) and expenses (0.25%). The latter does not apply to SMA’s although all commission and other charges, fees and expenses are the responsibility of the SMA owner. The LP and the mutual fund were managed in the same style and by the same portfolio manager and advisor, RAM Capital Management LLC, since the fund’s inception on January 1, 1996. The past performance is not necessarily an indication of how an SMA will perform in the future.
The S&P 500 Index is an unmanaged composite of 500 large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks. You cannot invest directly in an index.
The information contained on RAM’s website and in RAM’s reports may not be published, broadcast, rewritten or otherwise distributed without prior written consent from RAM Capital Management LL C.
Investors should carefully consider the investment objectives, risks, charges and expenses of RAM Capital Management LLC's (RCM) services. This and other important information about RCM is contained in its Form ADV, and, along with performance current to the most recent month, can be obtained by contacting us.
The information contained herein, including any attachment(s), is provided by RAM Capital Management, LLC ("RCM") to the intended recipient solely for informational purposes. Any dissemination, re-distribution or other use of this message by any recipient is unauthorized. Past performance may not necessarily be repeated and is no guarantee or projection of future results. The information in this document has been obtained from sources believed to be reliable, but RCM does not represent that it is accurate or complete. Data presented is not audited and includes estimates, which may not represent actual results. RCM assumes no obligation to update or correct estimates.