WEALTH MANAGEMENT (RIA)

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PORTFOLIO DIVERSIFICATION THROUGH NON-CORRELATION OF ASSETS

ANALYTICAL METHODS

 The Advisor, and its Investment Advisory Representatives (IARs), uses various analytical methods as part of its investment advice and asset management services.

  • Fundamental Analysis. Advisors may analyze company financial data and company performance metrics, and other platforms to determine entry and exit points for new or existing positions, or to apply certain option overlay strategies. Fundamental analysis may help identify income or growth potential points for stocks, ETFs and sectors, yet economic events and company announcements can counter expectations.
  • Technical Analysis. Advisors may use technical chart analysis, and other platforms to determine resistance points, trends, etc., to determine entry and exit points for new or existing positions, or to apply certain option overlay strategies. Technical analysis may help identify trends or resistance points for stocks, ETFs and indices, yet economic events and company announcements can counter trend expectations.
  • Cyclical/seasonal. Advisors may use economic cycle or seasonal trend data to determine entry and exit points for new or existing positions, or to apply certain option overlay strategies. Cyclical and seasonal trend analysis may help identify cycles of when certain sectors are more or less active, economic events and company announcements can counter historical trends.
  • Event/news. Advisors may use macro-economic events or news to determine entry and exit points for new or existing positions, or to apply certain option overlay strategies. Events and news may help identify possible price moves for stocks, ETFs, sectors and indices, yet such news and events may not affect price as expected.
  • Volatility Analysis. Advisors may use market volatility analysis to determine what securities to trade, when to enter or exit. Volatility analysis may help identify possible price moves for stocks, ETFs, sectors and indices, yet such volatility indicators may be short and require more active position adjustment to preserve gains or mitigate losses.
  • Volume flows. Advisors review current market volume as a potential indicator of institutional money flow. Volume analysis may help identify possible price moves for stocks, ETFs and sectors, as volume may indicate institutional buying or selling. Other events, such as news or events which adversely affect the trend, may counter volume-driven price trends. 
  • Back-testing. Advisors may have back-tested its service to help validate the strategy method uses. For services that have been back-tested, results data is available upon request. Please note that back-tested data is not indicative of future performance.
  • Risk management. Individual portfolio risk is monitored using Bloomberg, Instaquote, and other platforms. ANALYTICAL METHODS

 

 INVESTMENT STRATEGIES   

Fortress Capital applies the Principals of Modern Portfolio Theory, and the above mentioned methodologies, in formulating our strategies, and managing client accounts.  We fundamentally believe that non-correlated allocations in a portfolio have the potential to lower risk without lowering expected portfolio returns.

Non-correlation means that portfolio assets should not move in the same direction at the same time.  If one asset is going down, the other should be going up, potentially offsetting some of the losses.  It’s the most powerful form of diversification.

Harry Markowitz developer of the Principles of Modern Portfolio Theory came up with two ways to define risk:  Systematic Risk and Unsystematic Risk.

Systematic risk is correlated to the market.  This means a stock will move with the market.  Systematic risk cannot be eliminated through diversification.  In fact, the expected returns of a stock affected by systematic risk will be correlated to aggregate market returns.

Unsystematic risk is not correlated to the market.  The price of a stock affected by unsystematic risk is affected by its own set of unique factors and influences, often specific to its particular industry.  Unsystematic risk can potentially be diversified out of a portfolio.  Assets affected by unsystematic risk could be used to try to reduce the risk profile of a portfolio.

In summary, Fortress Capital Investment Strategy follows the Principles of Modern Portfolio Theory:

  • A portfolio of assets as a whole is greater than the sum of its parts.
  • Risk and returns are inextricably linked and must be evaluated together.
  • Diversification is the KEY for attempting to manage risk and maximizing returns.

Non-correlation among asset allocations is the most effective form of diversification and risk control, as it can potentially reduce overall portfolio risk and aim to increase returns across an entire portfolio.  In keeping with these principals, Fortress Capital uses the following strategies in managing client accounts, provided that such strategies are appropriate to the needs of the client and consistent with the client’s investment objectives, risk tolerance, and time horizons, among other considerations:

Fortress Capital uses the following strategy(ies) in managing client accounts, provided that such strategy(ies) are appropriate to the needs of the client and consistent with the client’s investment objectives, risk tolerance, and time horizons, among other considerations:

 

  LONG-TERM PURCHASES

We purchase securities with the idea of holding them in the client’s account for a year or longer. Typically we employ this strategy when:

• We believe the securities to be currently undervalued, and/or

• We want exposure to a particular asset class over time, regardless of the current projection for this class.

A risk in a long-term purchase strategy is that by holding the security for this length of time, we may not take advantage of short-term gains that could be profitable to a client. Moreover, if our predictions are incorrect, a security may decline sharply in value before we make the decision to sell.

 

SHORT-TERM PURCHASES

When utilizing this strategy, we purchase securities with the idea of selling them within a relatively short time (typically a year or less). We do this in an attempt to take advantage of conditions that we believe will soon result in a price swing in the securities we purchase. A short-term purchase strategy poses risks should the anticipated price swing not materialize; we are then left with the option of having a long term investment in a security that was designed to be a short-term purchase, or potentially taking a loss. In addition, this strategy involves more frequent trading than does a longer-term strategy, and will result in increased brokerage and other transaction-related costs, as well as less favorable tax treatment of short-term capital gains.

 

MANAGED FUTURES

To meet the challenges of increasingly volatile markets, Fortress Capital looks beyond just stocks or bonds.  Managed futures is a professionally-managed investment vehicle that trades clients’ accounts in the futures and options markets.

A portfolio of stock, bonds and managed futures achieves non-correlation in a different way than a portfolio without managed futures.  This does not minimize the risks associated with all trading.

 

TAX AND LEGAL ADVICE

 Fortress Capital. does not offer tax or legal advice. We strongly recommend that each client seek professional tax and legal guidance to understand the potential liabilities you may incur prior to using any of our services.

 

RISK STATEMENT

Investing in securities involves risk of loss that clients should be prepared to bear. Options involve substantial risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options prior to investing. Market volatility, volume and system availability may delay account access and trade execution quality. There is no guarantee, written or implied, that any of the strategies or services offered by Fortress Capital will result in the desired outcome. Back-testing results are not indicative of future performance.

 

NO PREDICTIONS. NO GUESSES.

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