Guiding Investment Principles

Based on the analysis of hundreds of years of investment data and implementing this research over the last 15 years, our investment philosophy is deeply rooted to the following beliefs:

• The current economic and investment environment resembles similar times in the past 100 years. The government will use nearly identical fiscal and monetary policies to deal with these conditions.
• Investment prices generally move in long trends and prices lead most economic and financial data. Technical indicators can be used to identify the direction of current investment trends, as well as changes in the trend’s direction.
• Investment indices are not useful as the sole performance gauge of an individual portfolio. Most investors misuse these benchmarks due to their lack of basic knowledge about index calculation methods, underlying assumptions, and component changes within the index itself.
• Multi-year cumulative returns are more important than annual returns in evaluating the overall performance of a portfolio. Individual investments usually need to be held several years in order to meet or exceed their long-term potential.
• There is no “best” investment strategy. All disciplines have strengths and weaknesses, and can have wide differences in short-term performance.
• Most investors lack sufficient knowledge about economic and investment history, which causes them to frequently repeat the same financial mistakes as past investors.
• The greatest dangers with investing are over-leverage, liquidity, and a lack of diversification. All are commonly found in portfolios near the top of bull markets.
• Very little is truly new! Investments are simply repackaged by Wall Street. All investments still fall into the two categories of owning (growth investments) or loaning (income investments).

Investing the Winans Way

The Investment Plan: Setting a realistic performance goal with a suitable asset allocation and having the discipline to stay focused are the most important characteristics that identify successful investors. Unfortunately, it has become popular for investors to judge the performance of their portfolio solely on whether it is “beating an index” on a year-to-date basis. In fact, many investors make dramatic, unwarranted adjustments to their portfolios, as if they are in some kind of race with other investors or the index itself.

At Winans International we believe a well thought-out game plan will likely lead to favorable results. This starts with setting a realistic performance goal based on historical facts that match the portfolio’s investment mix. Winans International primarily focuses on a fixed, five-year cumulative performance goal based on the long-term returns of the investment types used in each client’s portfolio. The asset allocation (i.e., mix of growth and income investments) will stay static throughout the five-year period.

 

As can be seen in this chart* (click the chart for a larger view), by focusing on the long-term average return of the S&P 500 Index™, an investor would know when the stock market is historically overvalued or undervalued and could plan ahead. Although past performance does not guarantee future results, by adhering to a fixed performance goal (rather than trying to outperform the market each year), our clients maintain reasonable investment expectations. This allows them to take profits in an “easy money” bull market when overall goals have been exceeded, and to buy during the bear market when historic buying opportunities exist.

This investment approach also allows for better control of taxes and transaction costs. In order to qualify for the lower tax rate on long-term capital gains, an investment in a taxable environment has to be held for at least 12 months. Our research has shown that even the top performing stocks, that vastly outperform the market over the long-term, don’t beat the market every single year. An investor trying to outperform the market each and every year would be forced to sell good, long-term investments that were having a bad year. While this short-term trading approach can produce higher annual gross returns, much of these gains are taken away by significantly higher taxes and trading costs.

It is important to remember that the S&P 500 Index™ has had negative annual returns 20% of the time since 1986. There are going to be bad years, and the investors who focus on the “big picture” have the best chance of realizing their long-term goals.

 

*Charts are created in MetaStock from Equis International

Market Analysis (Is it a Bull or Bear Market?)

It has often been said that, “Timing is everything!”

In investing, when to buy (or sell) can be as important as what to buy (or sell). Market analysis provides insight about the current investing climate as well as possible threats in the near future.

Click image for a larger view

As a developer of market indices, as well as the Winans Trend Indicator (seen above*), Winans International has a strong reputation in market analysis. We actively monitor the long-term trends of the stock, bond, and real estate markets to detect any changes that would cause us to shift our overall investment strategy.

An important key to our investment program is that our clients authorize us to maintain large cash positions during uncertain times, such as an adverse change in the direction of a long-term investment trend.

 

*Charts are created in MetaStock from Equis International

Growth Investment Selection (Common Stocks, ETFs & Options)

As an investment advisor who primarily focuses on quantitative and technical analysis, we view stock investing very differently than firms that focus on fundamental analysis. Since the main objective in growth investing is the price appreciation of our investments, Winans International’s research focuses on the long-term historical performance of a company’s stock itself. We believe that stock price movement leads all other financial and economic information.

With access to data on 7,600 publicly traded companies, we screen for the elite group of stocks, or exchange traded funds (ETF), that have a history (since 1986 or initial public offering before 1997) of outperforming the overall market in the following ways:

• The security’s overall cumulative % return
• The stock’s average annual % return
• The % of time the stock outperformed the market’s average annual return
• The % of time the investment had negative years
• The % of time the stock had back-to-back negative years.

Our typical growth portfolio has a diversified mix (between 20 and 40 holdings) of U.S.- based companies from various industry groups that have a medium to large market capitalization. Exchange traded funds are typically used in smaller portfolios and for clients who prefer them as investments.

Click image for larger view

After an investment candidate has passed our screening criteria, it is actively monitored through our proprietary price tracking system (seen above*). This is based on numerous stock price statistics, and the system aids us in determining buying, loss reduction, and profit taking opportunities for the growth investments and their listed options.

For Advanced Investors, Winans International has developed advanced strategies with a goal of enhancing total return or hedging the portfolio during a major market decline by using margin, short sells, and listed equity options in both taxable and ERISA (retirement plan) accounts.

 

*Charts are created in MetaStock from Equis International

Income Investment Selection (Preferred Stocks & Bonds):

As a respected researcher of income investments, we have strong capabilities and experience with both fixed-income and equity-income investments.

The objective of income investing is to provide a projected annual income with low volatility in the underlying portfolio’s annual value. This can be achieved, because the greatest advantage of most fixed-income investments is to hold these investments to maturity, and with near certainty, getting the investment’s projected cumulative return. Though various factors may affect valuations, they have no effect on the projected return on bonds held to maturity.

Diversification is key to minimizing the investment risks of any portfolio, but for income investing, it is much more complicated. In addition to diversifying by industry and issuer, the income investor also needs to consider maturity (i.e., duration), investment type (government debt, corporate bond, preferred stock, etc.), agency ratings, income tax considerations, and brokerage account placement.

Click image for a larger view

Our portfolio management system allows us to customize our client’s portfolios to their specifications regarding investment return relative to risk.

Our typical fixed-income portfolio has a mix of corporate bond and preferred stock holdings. The bonds have an average S&P rating between BB- and BBB+, a yield of 3% to 4% above 10-year US Treasury bonds, and maturities within 10 years. Preferred stocks have an average S&P rating between B+ and A, a dividend yield of 3% to 4% above 10-year US Treasury bonds, and are exchange listed with stable liquidity. Real estate investment trusts, exchange traded limited partnerships, common stocks, and real estate trust deeds are often used in these portfolios.

We track investments through our proprietary monitoring system, which is based on numerous price statistics. This system aids in determining buying and loss reduction prices.

Portfolio Rebalancing

Most of our clients have a blended portfolio of growth and income investments, which needs to be rebalanced quarterly in order to maintain proper diversification within the portfolio’s asset allocation. This involves “pruning” positions that are too large relative to the portfolio’s size and reinvesting into other investments. Cash deposits from the client, excess income, or proceeds from matured or sold investments are typically reinvested at this time.

Year-end rebalancing is also done for tax reasons.*

 

*We neither provide nor offer tax advice.  You should consult your tax professional before engaging in any planned financial transactions that may have tax implications.

Client Participation

We encourage our clients to be actively involved in the important process of setting a meaningful goal and periodically reviewing the portfolio’s progress with our staff. Communication is the key to a successful investment partnership!