Stack Financial Management
2472 Birch Glen, Suite A
Whitefish, MT 59937
Toll Free: 800-790-5001
"Through diversification and careful attention to the historical forces that move the market, Stack Financial Management utilizes a "safety-first" approach to money management. The foundation of our investment philosophy is a belief that portfolio allocation must be based on a careful assessment of market risk."
Our concern for risk in the pursuit of profits has led to the evolution of the methodology which we use in selecting investment securities and structuring client portfolios. Many investment management firms profess the ability to forecast market turning points. However, at Stack Financial Management, we follow the powerful proprietary indicators and have access to the technological resources supplied by InvesTech Research.
Our overall objective is to reduce bear market declines to less than half of that of the broad market indexes and still achieve the majority of the upside. We strive to achieve this objective through careful asset and sector allocation. This strategy reduces volatility and can actually increase long-term returns.
Most investors are familiar with the "Magic of Compounding Interest," but what they fail to realize is that it works in reverse as well. This "Damaging Power of Reverse Compounding" graph (below) shows how much an investor must gain back at various levels of portfolio losses. With a 10% loss, an investor must gain 12% to be back to even. With a 20% loss, the gain must be more than two times that at 25%. As losses become more extreme, so does the reverse compounding. With a 40% loss, an investor needs to make back 67% to break even and with an 80% loss, they have to gain 400%!
This destructive nature of reverse compounding illustrates that:
■ A -40% loss is not 2 times worse than a -20% loss… it is 2½ times worse!
■ A -60% loss is not 3 times worse than a -20% loss… it is 6 times worse!
■ A -80% loss is not 4 times worse than a -20% loss… it is 16 times worse!
Minimizing losses in a bear market is critical to the long-term success of your investment portfolio. At SFM, we strive to keep bear market losses to half or less of the overall market decline.