Investing

The Long and Short of How Scotia Manages Money

Anyone who pays the slightest attention to the movements of the stock markets over time will notice quickly that the market goes up and the market goes down. Most traditional buy and hold approaches make money only when the market goes up. Our relative return models try to lose less than the market (or actually make a small return) when the markets turn down. Our absolute return approaches to investing try to make money in the account both when the market goes up and when the market goes down. Huh? Within the last decade, several mutual fund companies have built mutual funds that act inversely to the market. When the market goes up, the fund goes down and vice versa. We employ sophisticated measures of market internal strength and weakness and make daily decisions to place investor money where our mathematical models tell us the market is most likely to go in the near term. When our models are not showing strong indication one way or the other, we put the investor money into money market funds where it can earn interest while we wait for high probability figures to emerge in our measurements to tell us the market is likely to move again. In market parlance, taking advantage of down moves in the market means being short the market and the opposite is being long the market. The mutual funds we employ make this easy to do since they allow us to be long or short a diversified portfolio of stocks with a single trade order.

“With a Lever Big Enough…”

“…One could move the entire world”…is what Archimedes said long ago. To take advantage of the high probability entries and exits it makes into and out of the markets, Scotia uses leverage in several ways. The first is in the mutual funds it chooses. Several families of funds now provide funds that track the market at twice the ups and downs. So if the market moves up 1%, the fund moves up 2%. Of course the same is true on the downside as well. But, remember that Scotia seeks to make money when the market is declining as well as going up.

So Exactly How…?

Scotia’s investment models are proprietary in nature. That is, we don’t give out the formulas or decision making tools we use to invest money. However, we offer our clients the opportunity to sit in our office anytime they want and watch us do what we do. We will explain everything we are looking at and how each day we decide what position to take. That is not to say that we will give out our formulas, but how we use them is open for clients to see. While good returns in a portfolio can be exciting, the exercise of implementing the methods to produce them is not. If you choose to visit, bring a Sudoku book or a magazine with you. We are number crunchers and our sparkling personalities are most bubbly when we are discussing the use of the Pearson Product-Moment equation. And, there are rules for a client on-site visit. Guys: No ties allowed. Gals: No high-heels allowed. Dunkin’ Donuts coffee (large, cream, no sugar) and pizza are welcome gifts anytime of day.

The Accounts

Scotia Partners, Llc. is not a brokerage or custodial firm. It does not hold your investment assets. Rather, it relies on nationally known firms that specialize in the types of trading that it does for its clients. Usually, mutual fund assets are held directly with the mutual fund company. This results in greater trading flexibility, lower costs for the client, and smaller market footprint for the trades.