April Newsletter
April 9th, 2018 by Anchor Bay Capital's Investment Team
It’s April which means Spring has arrived and the flower fields are in full bloom here in Carlsbad. It’s a great time of year and here by the beach many people are becoming more active as the daylight gets longer. This includes Anchor Bay as last weekend our team had a great time running in the Del Mar Mud Run. This was a great experience to get out and have some fun while also raising money for a good cause. The Mud Run benefits Operation Rebound which helps disabled veterans and first responders through athletics and fitness.
A mud run is not like a traditional race. The entire course is filled with obstacles from muddy pits to crawl through to muddy hills to run up and slide down. While it is mostly a fun time, your body needs to be tuned up in order to handle the changes in pace throughout the run.
This experience can be a good analogy for the stock market right now. As we have written before, 2018 has brought increased volatility back to the market. There have been several ups and downs and obstacles throughout this first quarter. As we start the second quarter, we feel that just as it is important to be active to keep your body healthy, it is important to be proactive with your investments to keep your portfolio on track. This is why we are introducing a new tool that will be part of our investment conversations with you. We have integrated a technology called Riskalyze into our process. This new tool will help you visualize the amount of risk in your portfolio and set expectations for how much volatility is acceptable. As we evaluate this together, we will have a better way to gauge how your investments match up with your financial goals.
Riskalyze uses a system to give each investor a “Risk Number.” Through a short easy evaluation, the software tells us what is the amount of loss acceptable within six months in order to achieve a desired return.
This is an important discussion to have right now as uncertainty has been a market theme so far this year. We feel this process will be helpful and different from most risk conversations. By focusing on a six month period of your investments, it is easier to articulate what outcome you would expect.
According to Riskalyze: “The Risk Number® is an objective, mathematical approach to removing subjectivity by quantifying the risk of investors and portfolios. The Risk Number is calculated based on downside risk. On a scale from 1 of 99, the greater the potential loss, the greater the Risk Number.”
The Risk Number visually looks like a speed limit sign. As you see the number on your portfolio, you can make the connection to how fast or slow the movements in your money should be. From the perspective of Riskalyze: “Generalizing client risk tolerance doesn’t work. Investors view risk through their own, unique lens to gauge risk and return tradeoffs. The speed limit metaphor helps instill an understanding of that risk. Sometimes it’s prudent to slow down depending on weather. Individuals are always evaluating their current location and discerning where they’re headed. In the same way, Riskalyze helps investors see what risk they currently have, how much risk they’re willing to handle, and how much risk they need to hit their goals. This is the focal point of the Risk Number.”
Over the next few months, we will be using the Risk Number in our meetings with you as we evaluate your portfolio. This will allow us to set an objective benchmark that is based on your preferences rather than a subjective industry standard like “conservative” or “moderate”. We will have in depth conversations about the investments you own and how your portfolio is built to perform in this market over the next six months. While this new tool is an added value, it is always just a piece of the entire process. It is always important for us to be accessible to you and understand your goals so that we can do our work efficiently. Please reach out to our staff when you need our service, and make sure to get out this April and enjoy the flowers!