Our Approach to Investment
Chapwood Investments, LLC’s mission is to deliver institutional quality portfolio management to high-net-worth individuals by utilizing the tools and statistics commonly used by the largest endowments and foundations in the country. By focusing on both quantitative and qualitative aspects on portfolio construction, Chapwood Investments, LLC is able to deliver wealth management solutions not found any where else in the industry.
As an independent investment advisor, we are able to provide investment advice without any conflict of interest and of third party influence. We blend traditional and alternative investments to build an overall investment management solution. Together as a team, we assist our clients in assessing their goals and build portfolios to achieve these. Our main objective is to achieve your desired rate of return with the least amount of risk.
Chapwood Investments, LLC creates portfolios to produce a desired rate of return with the lowest level of risk possible by combining assets that historically have exhibited a low correlation to one another. By doing so, we are building a portfolio that is made-up of assets that will respond different to any given market or economic conditions. In theory, an “All Weather Portfolio” that has the potential to perform regardless of market conditions.
Our investment strategy is quantitative and methodical in nature. We follow an academically proven investment strategy, which won a Nobel Prize in Economics in 1990. We believe that risk can be reduced through diversification and evaluation of the historical inter-relationship of the various assets in a portfolio.
At Chapwood Investments, LLC, we are concerned with investment analysis, portfolio design, and portfolio performance evaluation. These methods express quantitatively our views regarding risk and its relationship to investment return. They focus attention on the overall composition of the portfolio rather than the traditional method of analyzing and evaluating the individual components. As your Investment advisor, we are able to examine and design portfolios predicated on risk-reward parameters and on the identification and quantification of portfolio objectives.
Most investment professionals focus their attention on the evaluation and selection of specific investments rather than on the portfolio as a whole. It is a common belief that skilled professionals, with their financial resources and information gathering abilities should be able to consistently “outperform the markets”. It is assumed that this can be done with sophisticated securities analysis and selection, and by skillfully timing moves in the markets. This assumption is further predicated on the concept that markets are inherently inefficient, thereby allowing investors with superior skills in selecting issues and timing markets to outperform benchmarks of market performance. To some degree, the markets are inefficient.
Simply stated, we select a mix of assets and the efficient allocation of capital to those assets by matching rates of return to a specified and quantifiable tolerance for risk. Risk tolerance is essentially the percentage of an investment portfolio that an investor is willing to risk to achieve a specific rate of return. It is not a simple one-dimensional process of selecting the right stock, bond or property to be place in a portfolio. Successful investors require the development of long-term plans arrived at in an objective and dispassionate manner. Too often, investment decisions are based on isolated, short-term consideration without regard to the portfolio as a whole or the inter-relationships of the asset used.
The number of assets in the portfolio is less important than the interrelationship of those assets. Therefore, having many assets in a portfolio will not reduce the systematic risk in the portfolio as much as having negatively correlated assets. Further, it is a misconception, that investors must accept higher levels of risk to achieve higher returns. By using asset allocation methodologies, investors may achieve higher returns with less risk.
All investors are inherently risk-averse. Investors are willing to accept risk when the level of return fairly compensate for the risk taken. It is also reasonable to assume that investors are more concerned with the level of risk taken than they are with rewards. The problem in the past has been to quantify risk and its relation to return in a quantitative method.
The fourth premise is for any level of risk that one is willing to accept, there is a rate of return that should be achieved. Quantitative methods are used to measure risk and diversification, making it possible to create efficient and theoretically optimal portfolios. Portfolio diversification is not so much a function of how many investments are involved, as it is of the relationships of each asset to one another and the proportionality of those assets in the portfolio. Therefore, we search for investments, which tend to have negative to non-correlation relationships to one another and should include assets, which go up in value as the value of other assets may declines value.
Our approach to money management ignores the narrow approach of attempting to beat the performance of individual markets and applies a much broader method of devising strategies. To provide the services that our clients require today, we utilize integrated investment systems, which include all of the computer models and ancillary services required to develop and manage your portfolio in a sophisticated asset allocation program.
- Strategic Asset Allocation uses historical data (ROR, STD and correlation) in an attempt to understand how an asset has performed and is likely to perform over long periods of time. The goal is not to “beat” the market, but to establish a long-term investment strategy using a core mix of assets.
- Tactical Asset Allocation uses periodic assumptions regarding the performance and characteristics of the assets and/or the economy. This approach attempts to improve performance by making “mid-course” changes to benefit from near-term expectations.