We recognize a principle that we believe is largely overlooked by most in our industry. A manager’s performance (investment returns) must be weighed against the potential risk of loss the investors are subject to – a lesson painfully driven home in bear markets. Many investors who achieved exceptional returns in the 1990s and 2003-07 experienced devastating losses in the 2000-2002 and 2008-2009 bear markets – a problem we believe will likely be repeated with each bear market.
At PIN, our focus is on avoiding such losses while still capturing equity-level returns over the long term. Most advisors either avoid any serious discussion of investment risk, or they use volatility (i.e., standard deviation or beta) as their measure of “risk.” But volatility is measured relative to the average return and tells one very little about the risk of suffering actual losses (the concern of most investors). What makes PIN unique is our usage of semi-standard deviation to measure and manage the risk of loss. Of the hundreds of portfolios we have reviewed from both new clients and our students, we’ve not yet heard of another investment advisor who tracks the actual risk of loss using semi-standard deviation. Through our focus on risk management and the analytical tools we have developed, we have the ability to effectively monitor and manage risk.