How do I explain Foxhall Capital’s global investment strategy to my clients?
Foxhall Capital employs a GLOBAL MARKET ROTATION investment strategy. As global stock markets rise and fall and economies throughout the world strengthen and weaken, we constantly adjust the mix of global Exchange Traded Funds (ETFs) and mutual funds that are held in our client’s portfolios.
Our GLOBAL MARKETS ROTATION strategy is based on the following principals:
1. When broad stock markets are in a long term, up-trending bull market we stay fully invested in an "OFFENSEIVE INVESTMENT STRATEGY" of global stock funds (mutual fund and exchange traded funds). When the broad stock markets are moving down into a bear market/recession we shift to a “DEFENSIVE INVESTMENT STRATEGY” of bonds, cash and hard asset funds like gold funds, real estate funds or precious metal funds, etc.
2. At Foxhall Capital, we believe “THERE IS ALWAYS A BULL MARKET SOMEWHERE IN THE WORLD” and that is why all of our portfolios are globally diversified.
FOLLOWING LONG TERM PERSISTENT STOCK MARKET TRENDS
I n 1964, Benjamin F. King, at the University of Chicago, published a study that quantified that 75% to 80% of a company’s stock-price performance was directly related to the overall direction-either up or down-of the stock market and industry sector of that particular stock.(1)
The study concluded that if the overall stock market and industry sector were going up, stock prices would rise. If the stock market was going down into a bear market/recession,
stock prices would decline. This is what happened during the recession of 2000 to 2002. The recession caused the entire market to go down and almost all stocks-the great, the mediocre and the bad stocks-all went down with the general slide in the market.
The most surprising aspect of this study was that the fundamentals of a stock or mutual fund, like earnings, sales and PE ratios only accounted for 20% of whether a stock or mutual fund would go up or down in price.
The conclusion investment professionals have taken from this study is that when the stock markets are in a long term positive up-trend, one should be fully invested in stock funds. When the long-term trend reverses into a bear market/recession, almost all stocks and stock funds will decline, so an investment manager must immediately implement a “DEFENSIVE INVESTMENT STRATEGY” of bonds, cash and hard assets like gold funds, real estate funds or precious metal funds, etc.
How long do these persistent market trends last? A Federal Reserve research study concluded that broad market trends tended to last 23 months to six years.(2)
This means you don’t have to have a crystal ball, or be a market timer to make money in the stock market. You just have to have the patience to follow the market in the direction it is already going and it doesn’t matter if you start investing in a trend a few months after it starts. It’s OK you will still make money since these broad market trends tend to persist for several years.
Almost every academic study shows that a globally diversified investment portfolio is SAFER AND MORE DIVERSIFIED than putting all your eggs in one basket- even if that one basket is the U.S. stock market.
In future issues of this newsletter I will explain what analytical tools we use to determine these long term market trends around the world and how we can determine when the broad stock markets are changing from a bull market to a bear market or recession.
Please feel free to share these newsletters with your clients. I have always believed that the more an investor understands the Foxhall Capital investment strategy, the more they appreciate the lengths we go to in our effort to manage the risk in their investment portfolios.
Until next week…..
(1)The Latent Statistical Structure of Securities Price Changes. Benjamin F. King
(2)When Do Stock Market Booms Occur? The Macroeconomic and Policy Environments of 20th Century Booms. by Michael D. Bordo and David C. Wheelock. Federal Reserve Bank of St. Louis Working Papers