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Portfolio Management
Our approach stems from an understanding of how volatility and market activity affect asset growth. We believe that appropriate investment strategies must function in both advancing and declining markets to be successful. We choose from the entire investment universe to select the most appropriate investments without being pushed or encouraged to use potentially inferior products. Our single focus is choosing the right investments for our clients.

At PMG, our core philosophy is a value-based approach to investing that leads to long-term investment success. We don't attempt to chase performance and ride the market's ups and downs. Seeking and expecting to invest in the top performing investments each year is unrealistic given that performance is unpredictable from year to year. The top performers one year may be the worst performer the next year. Many investors have experienced this phenomenon during their investing history by purchasing a top performing stock or fund, only to watch it lose value once they invested in the chosen security. We search the universe of investment products to find consistent high quality investments that fit our approach. We are conservative in our approach, but aggressive in our management.

Investment is more than achieving attractive returns. Many investors chase the attractive returns only to find they have stumbled across the unattractive downside risk and accompanying asset loss. Declines are much more damaging than aggressive returns are rewarding. A client that sustains a 20% loss in one year must have a 25% gain to offset the loss. Managing volatility provides better long-term performance and higher cumulative returns. The fastest path from Point A to Point B is achieved through slow, steady performance by balancing opportunity and risk.

Volatility is the single most important factor in long-term wealth accumulation. Why is that so? Compounding is the key to growing assets. Losses in a portfolio have a disproportionate effect over gains in a portfolio. A portfolio that enjoys a 20% gain in one year and suffers a 20% loss in the next year has lost wealth. For example, a client that started with $10,000 would have seen the assets grow to $12,000 after the first year. In the second year, the same assets would have decreased to $9,600. Although the average return would be breakeven or 0%, the account actually lost $400 over the two years. It takes a 25% gain to offset a 20% loss. Losses have a larger negative effect than the same corresponding gain has a positive effect because the assets lost will not compound over time to generate maximum wealth.

The following illustration and chart shows a graphic representation of the effect of volatility. Portfolio A has an annual return of 8% and Portfolio B has a variable return ranging from +30% to -14%. Both portfolios have an average return of 8%. The difference is in the volatility. The lower volatility Portfolio A ends up with a higher balance than the more volatile Portfolio B.

Clients gain maximum wealth over the long term by limiting downside risk (and the corresponding asset loss) while participating in most of the gains in positive markets. Investors don't have to do the impossible – predict the best performing assets each year. Investors' goals should be to earn decent returns while avoiding big losses.


Portfolio A Portfolio B
Year Annual Return Balance Annual Return Balance
0 $10,000.00 $10,000.00
1 8% $10,800.00 10% $11,000.00
2 8% $11,664.00 -4% $10,560.00
3 8% $12,597.12 6% $11,193.60
4 8% $13,604.89 30% $14,551.68
5 8% $14,693.28 14% $16,588.92
6 8% $15,868.74 -2% $16,257.14
7 8% $17,138.24 4% $16,907.42
8 8% $18,509.30 -14% $14,540.38
9 8% $19,990.05 20% $17,448.46
10 8% $21,589.25 2% $17,797.43
11 8% $23,316.39 16% $20,645.02
12 8% $25,181.70 12% $23,122.42
13 8% $27,196.24 8% $24,972.21
14 8% $29,371.94 0% $24,972.21
15 8% $31,721.69 18% $29,467.21
Average Return 8% 8%
Total Return 120% $21,721.69 120% $19,467.21
 
 
 

Pebble Management Group, LLC is a Registered Investment Adviser. Information presented in this publication is not intended to be specific investment advice. Investors should consult a qualified financial adviser before making investments specific to their needs and situation. The information in this website constitutes neither an offer to sell nor a solicitation to invest. Such offer or solicitation will be made only in those jurisdictions where permitted by law.

To the extent that this material concerns tax or legal matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax and/or legal professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.



This communication is strictly intended for individuals residing in the state(s) of LA. No offers may be made or accepted from any resident outside the specific states referenced.
 


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