The Markets

This month I would like to present some important rules, philosophies and concepts we use in making investment decisions. Although there are no guarantees for the future, these core precepts have held us in good stead in managing money in good times and in bad times such as the Financial Crisis of 2008-2009. They are in no particular order as they are all important. They range from hard and fast “rules” to salient points to consider in my decision making process, to the Three Pillars of our Risk Management System, to even to how we pick certain mutual funds. While this is not a complete list of steps we go through in making decisions, it is certainly representative of the big picture.

First, some “rules”. These are items that are extremely important in all the models we manage: Multi-Asset Strategy, World Leaders, and our new model, Worth Growth and Value.

1.  Risk in comparison to reward is ultimately most important. This is especially true in the Multi-Asset Strategy, whose goal is less risk. It is not pure reward we are after. It is always first “What is the risk of this investment?”

2.  Understand yourself as an investor. Be patient. Know that there will be stretches where you do not do well.

3.  Keep track of all trades. Know why you bought and why you sold. Review these reasons periodically. They will help you not make the same mistakes over and over.

4.  Certainty is not a possibility. Be comfortable with probabilities.

5.  Know ahead of time, as much as possible, what you will do in a bullish scenario and what you will do in a bearish scenario. This will help you cut down on the probability of second guessing yourself later on.

6.  Diversification across different asset classes beats market timing most of the time. All portfolio changes should only be based on potential long term trend changes.

These rules are closely related to what I call the Three Pillars of Risk Management. They are: Diversification, Correlation and Methodology. We’ve just touched on Diversification. Correlation relates to the fact that we are striving, in our models at all times, to reign in risk and have the best risk/return ratio we can accomplish. We can sometimes accomplish this by having a low correlation to stocks or bonds. An example of this would be our position in gold. It can also at times be by positioning the portfolio in real estate, currencies, commodities, etc.

The third pillar is Methodology. It refers to the “glue” of putting all these concepts into motion to, hopefully, get the result we are looking for. It includes, but is not limited to, melding different philosophies of investing into one portfolio. These include activist investing, long/short investing or positions that internally rotate asset classes as markets warrant and sometimes dictate. Although no guarantees can be given, we feel that with this complete approach of Diversification, Correlation and Methodology, we have the best chance to reach our goals for our clients over time.

Many of you over the years have asked how we pick funds. Two of the three models we manage involve mutual funds. They are the Multi-Asset Strategy and our new World Growth and Value, which many of you have already engaged us in conversation about. If anyone, whether already having learned something about it or not, has any questions about it, do not hesitate to call our office. The World Leaders model is strictly assembled using individual stocks. Using the concepts presented here is paramount. In addition, we have listed a few specific things we look at. In no particular order, they are:

1.  The length of time of existence of the fund.

2.  The length of time the manager has been there.

3.  What is the unique aspect of the fund that makes it work for a specific model?

4.  How well has the fund done in down markets?

5.  What is the portfolio turnover?

6.  Does the fund overlap with others?

7.  What is the track record compared to others in its category?

8.  What are the risk factors?

9.  What is the portfolio size?

We hope all this has been helpful in understanding the process we use to potentially obtain the results we are after over time. As always, feel free to contact us with any questions or for elaboration.

That’s it for now. We want you to know we are trying to follow all events closely and doing all we can to be good long-term stewards of your money. As always, feel free to call us as needed. We are always delighted to hear from you. All calls will be returned promptly as you know (usually within 24 hours).

We are eagerly looking forward to working with you in the months and years ahead and thank you for all your referrals to date. Also, as always, should the markets dictate an interim newsletter, we will do so.

OUR PHILOSOPHY

Successful investing is a marathon, not a sprint. Sometimes investing is like watching paint dry, marking time, boring and with not much movement. Sometimes it is chaotic and fear based. Greed and fear are often present. We are long-term investors. We believe four to five years is the appropriate time frame to assess risk and reward. At the end of that time, another four to five year time frame takes place. This keeps happening until one is in the distribution phase of life and needs to live off their assets. Therefore, of course, it is where we are at the end of the race that counts. Although no guarantees can be given, our goal with all our clients is to get to the end of the race in as good a position as possible given their particular life circumstance.

Disclosure Statements

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the expected return of an asset based on its beta and expected market returns.

Risk and Return

The views expressed are not necessarily the opinion of Royal Alliance Associates, Inc. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results.

This newsletter contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice and is subject to change without notice. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed.

Investors should be aware of additional risks associated with international investing due to factors such as greater economic and political instability, increased volatility, currency fluctuation, and differences in auditing and other financial standards and that these risks can be accentuated in emerging markets.

Important Consumer Disclosure

This newsletter contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice and is subject to change without notice. References made herein to the market indices are for illustrative purposes only. An investor cannot invest directly in an index. Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. Certain information contained herein has been derived from third party sources. Although believed to be reliable, we make no representations as to the accuracy or completeness of any such information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. Additionally, certain statements that indicate future possibilities are forward looking statements. Due to known and unknown risks, other uncertainties and factors, actual results may vary materially from those portrayed in such forward looking statements. As such, there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Investment Advisors Asset Management, LLC (“IAAM:”) is an SEC registered investment adviser with its principal place of business in the Commonwealth of Pennsylvania. Registration does not imply a certain level of skill or training. IAAM may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from/notice filing requirements. This newsletter is limited to the dissemination of general information pertaining to its investment advisory services. Any subsequent, direct communication by IAAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of IAAM, please contact IAAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about IAAM, including fees and services, send for our disclosure statement as set forth on Form ADV from IAAM using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

Securities offered through Royal Alliance Associates, Inc., member FINRA, SIPC. Advisory services offered through Investment

Advisors Asset Management, LLC, a registered investment advisor. Entities listed are not affiliated with Royal Alliance Associates, Inc.