An Alternative to “Buy and Hold” If you’re frustrated with underperforming investment returns and a portfolio that isn’t keeping up with inflation, you’re not alone. The Average Investor Underperforms The Market As the first chart at right shows, over the last 20 years the average investor (green) has returned only 3.8% compared to the S&P 500’s return (blue) of 9.14%. The average investor has also lagged the S&P 500 over the last 1-year, 3-year, and 5-year periods and has returns similar to the S&P 500 over the last 10 years. Note that purple represents the average fixed income investor, olive green reflects the average asset allocation investor, and orange represents the Barclays Aggregate Bond index.
	Source: Dalbar, Inc. 2011 Quantitative Analysis of Investor Behavior, Advisor Edition. March 2011.

And Their Investment Portfolio Doesn’t Keep Up With Inflation Similarly, as the second chart at right shows, over many time periods, the average equity investor (green) also fails to keep up with inflation (red), returning lower rates over the last 3-year, 5-year, and 10-year periods. Note that purple represents the average fixed income investor and olive green reflects the average asset allocation investor. The problem is that the average investor doesn’t have the time horizon, skill, or patience to make the “buy and hold” approach work. The challenges include: Emotional decision making Expecting higher returns with only low levels of risk Diversifying a portfolio without thought to how different investments interact We believe the solution is to fire yourself and hire a professional: someone with the time, inclination, and expertise to help.

Source: Dalbar, Inc. 2011 Quantitative Analysis of Investor Behavior, Advisor Edition. March 2011.

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Our Investment Philosophy

The investment philosophy behind the Kenjol SmartZone Investing System includes the following ideas:

• Traditional asset allocation is largely ineffective for the average investor.

Most investors lack the time horizon and patience to take advantage of the full market cycle necessary to yield above-average returns.

• Positive returns are possible even in difficult periods.

Despite the negative cumulative 10-year return for the S&P 500 from 2000-2009, positive returns did exist during this time period—but not if your investments were only indexed against the market.

• Risk management is paramount in market downturns.

By preserving capital, investors need much smaller returns to regain their high watermarks.

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The Kenjol SmartZone Investing System

These ideas are incorporated into our SmartZone Investing System and help us seek to maximize returns by riding the ups of the market and minimize risk by preserving capital in market downturns.

The Kenjol SmartZone Investing System actively balances these two competing investment objectives by:

• Continually identifying and exploiting market opportunities and areas of strength
• Vigilantly monitoring and evaluating market risks
• Dynamically adapting and adjusting to changing market conditions
  

We employ an active management approach to investing called trend following. This type of technical analysis focuses on price movements instead of predictions or forecasts. Instead of trying to anticipate what will happen, our investment strategies react to the market’s price movements whenever they occur. This eliminates emotional decision-making that can be detrimental to an investment portfolio.

Most importantly, this approach allows us to shift to the market’s strength to maximize return by riding up the market and minimize risk by shifting to cash to preserve capital during a down market.

We call our approach the “shift to the SmartZone.”

To learn more about our firm, click here. Or, to learn about how we implement our approach, click here.