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Following from our Investing Philosophy and Strategy, the third, and arguably most important component of investing deals with navigating the market during all conditions – especially through high turbulence periods. To accomplish this requires accurate and dependable market analysis.

The specialized analysis we use is the INSTITECH 4000 process. Developed by Howard Hebert during the 1960’s, INSTITECH 4000 provides accurate, data driven stock market analysis.

Working with market conditions is key, fighting against the market is not a recipe for success.

As investors, we can’t choose the market conditions, we can only choose how we’ll react to them. A good, repeatable investing process greatly increases the odds of achieving the best possible outcome given uncontrollable market conditions.

Successful market navigation requires a two-part disciplined plan, starting with the questions:

  1. What is the current market condition and the degree or strength of that condition?

  2. What portfolio actions are required to navigate the current condition?

How We Get There:

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Identifying Market Conditions:

The market status described by INSTITECH 4000 analysis is the guiding force behind our portfolio management efforts. There are three status conditions:

  • Bullish, or generally up trending or positive market conditions.

  • Bearish, or generally down trending or stressful market conditions.

  • Neutral, or generally unsettled market conditions, usually without a firm up or down direction.

In addition, Bullish and Bearish conditions are measured within three strength categories:

  • 0 – 49 = Unsettled (Bullish or Bearish)

  • 50 – 99 = Moderate (Bullish or Bearish)

  • > 100 = Strong Bullish or Severe Bearish.

  • Neutral is consistently measured at 0 (zero)

Disciplined Rules and Actions:

  • All stocks must stand on their own merits, in any market condition.

  • Guardrails are established in advance for every stock purchased.

  • During all market conditions:

    • When a stock breaches one or more guardrails, it is sold.

    • The status direction and the trend or velocity of its movement, up or down, is taken under consideration guiding the next actions to take, if any.

  • During Bullish conditions when a stock breaches guardrail(s) and sold, it is replaced with a higher quality stock.

  • During Bearish periods:

    • Guardrails may be tightened to further minimize potential losses.

    • When a stock breaches the guardrail(s) and is sold, it is not replaced until market condition approaches, or returns to, Bullish condition.

    • Proceeds from Bearish sales will flow to money market cash funds until better market conditions occur.

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