Master Asset Management

To kick off the new year, I am implementing a new investment strategy that is very different from my current offerings. The main reason for this is that the current environment does not lend itself well to lower turnover strategies, because so many asset classes are mispriced for short periods of time. 2011 was a perfect example of how the buy and hold doesn’t necessarily always work. The market was flat for the year, but had wild swings throughout the year. Therefore, a shorter-term trading strategy that can take advantage of this mispricing, especially when they get extreme, could be very successful. This strategy, by having the flexibility to go anywhere an ETF is available, long or short, will enable me to find these severe mispricing events and take advantage of them. The objectives and framework for the strategy will be:

1. Short term, swing trading, with trades lasting a few days to weeks.
2. Exclusive use of ETFs, including inverse and leveraged.
3. No margin.
4. I will limit downside on each trade.
5. Drawdowns are expected to be short, but potentially deep, i.e. around 10%.
6. Expected returns on each trade will be 2-1 versus potential downside.
7. Expected returns will be 80-100% annually.
8. Positions can be out of alignment at any time with positions in other strategies.

This strategy will be implemented within an existing account, using an amount of assets agreed upon by the client and me for the portfolio. I will keep track of how that portion of the overall portfolio grows based on end of quarter valuation. Because of the additional time and attention this type of trading requires, the fee for assets in this strategy will be 2% annually, which means I will charge .50% quarterly in arrears. While not a requirement, I would like the minimum account size in this strategy to be $50,000.

I have an agreement in place with a colleague that if anything was to happen to me, Janet will get in touch with him and he is to close out these positions immediately. This strategy will make sense for a small portion of larger accounts, and the younger and more aggressive a client is, it makes sense for a larger percentage of their overall portfolio. This will be determined on a case by case basis.

I have a client agreement that will need to be signed by the client to begin the strategy. Cancelling the strategy can happen at any time by me and with one week’s notice by the client. I will contact clients that I feel this is appropriate for, but feel free to call me with any questions or comments at any time.

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