Vari Investor Services



It is relatively easy to understand our philosophy of managing money. The four basic principles outlined here are really nothing more than basic common sense. Our entire investment methodology is based on them.

1. Before You Devise a Plan To Make Money,
    You Must First Devise a Plan To Avoid Losing It ...

Early in my career, I discovered a vital principle of investment: while it is difficult to accumulate investment capital, it is very easy to lose it. This simple common sense proposition was ingrained into my psyche more than 20 years ago when I was a portfolio manager with a major firm in La Jolla. This firm was very good at identifying companies whose stock values would rise in rising markets. But the firm had no disciplines in place for preserving capital in falling markets as I came to realize during the bear markets of the early and mid ‘70’s. It was then that I decided that I needed to plan for falling markets and to have a plan to avoid losing capital, which has been a key strategy for Vari since its inception.

2. No Management Strategy Can Be Effective
    Without Clearly Defined Objectives ...

Investments are nothing more than tools to accomplish objectives. Without objectives, it is impossible to select the right tools to get the job done. I’m continually amazed by the number of people whose primary objective is to “make money” with their investments. Most people would probably not leave on a vacation without knowing where they were starting from, where they were going, or how much time and money they could devote to this vacation. In my experience, this is exactly what many people do in their financial lives. Many people go through their financial lives with their fingers crossed, hoping for success. I want my clients to uncross their fingers, clearly define their objectives, and allow me to help them devise a strategy that will realize their objectives.

3. Wealth Is Not Created By Investment Returns, It Is Created
    By Savings And Preserved By Investment Returns ...

Think about this for a minute.  How many people do you know who became financially independent because of investment performance?  In the last 23 years, I’ve met one.  The vast majority of financially successful people are disciplined savers.  The best example to illustrate this point is school teachers. These people never make much money but many retire with more income than they ever earned in their working lives.  How do they do this?  It’s quite simple: they voluntarily reduce their salaries and contribute money each month to a tax-sheltered annuity program.  Experience taught me that savings and capital preservation – not investment returns – are the most important ingredients of financial success.

4. You Can Control Risks, But Not Returns ...

Capital markets are unpredictable. If anyone really knew the future direction of any market, they could become incredibly wealthy in a matter of weeks. The key then is to focus on controlling risk by understanding the types of risk we face and the techniques to manage them. There are risks in every investment. The important thing is to know what these risks are, how to control them, and to take no more risk than is necessary to accomplish the objective(s).

Our Methodology

Over the years we have developed several practical and effective methods of incorporating these principles into our management disciplines.

1. Financial Speed ...

Most of us know that the faster you go the more risks you face. This is true whether you’re driving a car or investing your capital. I hope you wouldn’t drive at 80 mph to get to a destination if driving at 60 mph would get you there on time. One of the most important duties is to help our clients define the right “financial speed” given their resources, their objectives and their time frames for accomplishing them. These three things dictate “financial speed”: the rate of return they need to generate to accomplish their objectives. Once we determine this speed, we can manage their capital with the goal of achieving this rate of return.

2. Risk Control ...

Once we define this “speed” we can define the degree of risk we must take and begin the task of controlling risk. Keep in mind, there are risks in going to slow and in going too fast. There are two aspects to our methodology in this area.

(a) Diversification

Diversification is the most important tool we have to control risk. Many investment advisors believe that diversification is achieved when you own ten different US common stocks. We disagree. If the ultimate goal of diversification is to reduce volatility, we must own different “classes” of investments whose prices do not move concurrently in the same direction. We therefore select investments from a total of seven different asset “classes”.

  • Domestic common stocks (including Mutual Funds)
  • Bonds and bond funds
  • International stock mutual funds
  • Commodities
  • Gold investments
  • Real estate trusts
  • Natural resource investments
  • Cash or cash equivalents
(b) Discipline

In my experience the emotions of hope, fear and greed account for ninety percent of all investment mistakes—both on the buy and sell sides of the decision-making process.  Eliminating these emotions (or at least reducing their impact) is a key ingredient in controlling and managing risk. We therefore use an “emotionless” mathematical discipline in our decision making process. We employ two different levels of investment discipline. The first dictates the investment “classes” we will use at any given time, and the second determines which investments we will own within these classes:

  1.  We never own an investment in any asset class that is not in a primary price uptrend.

  2.  We never buy an investment in a given asset class unless it is performing at least as well as the overall index  of the asset class itself.

3. Investment Selection ...

Once we decide to make purchases in any asset class, we have to spend some time selecting the most appropriate vehicles inside this class. Here is where the process becomes more of an art than a science. Obviously, price performance is a consideration in the investment selection process. It’s better if the price of the individual investment has been going up rather than down. Another way of saying this is that we concentrate on opportunities rather than problems. In my experience the best way to lose money in the stock market is to purchase an investment that is in a primary price downward. We also rely heavily on other criteria such as:

  • Historical volitility
  • Economic & industry trends
  • Consistency of performance
  • Relative value
  • Financial stability & predictibility

In selecting individual investments we also have to keep in mind that some will be suitable for clients with high investment return expectations, and others will be suitable only for very conservative clients. After all, there is a huge difference between Intel and PMC Sierra. 

4. Experience & Knowledge ...

I’ve been managing money for clients for over twenty-five years and I’m pleased to say that most of these clients have been very satisfied with my philosophy, methodology and performance. Of course, it’s performance that counts but without a sound philosophy and a method for implementing that philosophy, performance will be like the weather—or worse, the lottery. Many clients have asked me “How do you do it?”  It’s relatively easy to explain my philosophy and methodologies, but it’s more difficult to explain the role of experience and knowledge. I guess it’s like asking a doctor to explain his education and his 20 years’ experience to you in an hour. It just cannot be done. I can, however, share some important lessons I’ve learned: 

  • Skepticism and a willingness to be a contrarian are virtues
  • Consistency and predictability of performance by a company, a person or a fund
    are the most important criteria in investment selection
  • Capital markets move in relatively long term cycles which are difficult to predict
    accurately, but can be recognized in an early stage by disciplined, trend-following techniques.
  • The actual act of purchasing an investment can be done by a seven year old child.
    Determining when to buy or sell it, is an art form that must be learned at the school of hard knocks.
  • The financial media are a major enemy of the individual investor. The media (print and electronic)
    know that the emotions of hope, fear and greed motivate people. The media deliberately appeal to
    these emotions to increase their ratings or circulation.
  • The most challenging aspect of our jobs is that we keep up to date on our clients’ objectives. We know
    we have a moving target.  This is why we need continual personal contact with clients to make sure that
    what we are doing makes sense in light of their changing objectives.

There are very few “absolute truths” in the financial planning profession but here is one of them: 

“When it comes to financial advice there are no experts—just varying levels of ignorance.”

Jack T. McCord, CFP™
Vari Investor Services, Inc

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Vari Investor Services Inc