Methodology

Key Steps To Exponential Asset Appreciation applying Integrated risk management Discipline

WHAT IS CME ?

CME is about knowledge, experience, human nature, common sense, patience, and above all discipline.

CONCEPT

Our primary concern is to focus on :


ACCOUNT CONFIGURATION

It is crucial that the investment account is configured correctly, pre-agreed and confirmed in writing, before funds are invested.

DIVERSIFICATION

« Strength in diversity » is the key to security of performance, diversification - must be real - spread over many; not just a few, non- to lowly correlated markets, within many non- to lowly correlated ASSET CLASSES (sectors of economic activity). Real diversification is not about being invested in different stocks or bonds or being in a «hedge fund» – a misnomer, bordering on the fraudulent, because most of these investment vehicles do nothing remotely connected with hedging. «Hedge funds of funds» by different managers employing different investment strategies, does not necessarily represent real diversification. Most of these investment vehicles are Speculative Funds lacking transparency and therefore accountability. They are heavily front loaded with unnecessary commission based fees. Time and again you will hear from the so-called experts within the establishment : «it's impossible to time the markets». Sheer nonsense ! Funds that admit this, logically don't have the skills to create real value for their investors – makes simple common sense, doesn't it ?

WHY MACRO MARKETS

The big view is what counts.. You've certainly heard the saying, The trend's your friend. Nothing could be truer when investing.

FUTURES MARKETS

That's why the Investment Manager has to know how to invest in the FUTURES MARKETS, conceptually the only perfect markets in the world ! The free unfettered market places where insiders go to use their knowledge to make money. It's as simple as that …. With the right technical analysis, the manager can consistently read what these investors in the know – the smart money are doing – usually a few days to a few weeks, sometimes even months in advance. Only the FUTURES MARKETS embrace this concept. The ability to go Long & Short all markets, all the time in the same way, is crucial to success. In a proper futures exchange there is no counter party risk. Unlike investing anywhere else, there is zero risk when funds are held in a reputable futures clearing house. The risk is entirely limited to how the account is traded. The FUTURES MARKETS are terribly maligned, precisely because they offer great opportunity, as well as great temptation. When investors find the Manager with the knowledge, skills, experience and discipline, willing to put this expertise to work for them – they've got it made !


CYCLICALITY

Historically, markets have not treated kindly, investors who have ignored cyclicality – at their peril…. Take the example, the period in the 1920s. Most DOW stocks did not revert to their mean prices before the beginning of the 1940s.. and again, when 1969 stock prices did not exceed their highs until 1992 – twenty three years later - much the same situation as from year 2000. No one can afford to ignore the natural cyclicality of the markets.

TRANSPARENCY

 Is important. The investor must be able to check that the manager is doing exactly what was pre- agreed. With the broker’s statements in the one hand and the pre-agreed configuration and methodology in the other, full TRANSPARENCY and ACCOUNTABILITY is assured.


PRUDENT CASH MANAGEMENT

Techniques must be ever present and explained carefully so they can be MONITORED AT ALL TIMES Without going into detail, the following points are important: Under Concept, they are: Leverage or Gearing; BIS Capital Adequacy Requirements (BISCAR) and proper Cash Allocations. How the Investment Manager interprets the conceptual issues, should be clearly reflected in the applied :

METHOD

To be in the right place at the right time is to be everywhere at once. POSITIONING AND TIMING is everything. Volatility is great, as long as it’s directional.

The right methodology must embody both techniques, known as VALUE  INVESTING and GROWTH INVESTING. One without the other is like running the marathon on one leg – not much chance of winning …Let's explain by giving  an analogy : There was an elderly gentleman who in his youth amassed a large collection of impressionist and post impressionist art. His collection was obviously very valuable, often bought for the price of a meal… This investor profited enormously from three fortuitous circumstances:

  • He was in the right place at the right time - he had presence of opportunity
  • He had the right « eye » for appreciating quality
  • He had a flair for detecting value. He was the classical «value investor». Apart from presence of opportunity, the two latter advantages he had were market interpretation and intuition – «a nose for value» and market timing.

Few  are fortunate enough to replicate these three advantages. 
Today, however, we have one advantage this investor didn’t have. We have Technology Assisted Technical Analysis (TATA) which when put together and used in the right way precludes subjective decision making. i.e, becomes non OTI (Open to Interpretation). It provides mechanical simplicity allowing the manager to do what the elderly gentleman did. 

The important strategies to look for in the manager’s arsenal are:

  • The ability to TIME THE MARKETS. Buying low, selling high – Selling high, buying low is still where the real money is.
  • CYCLICAL trend and counter trend TRADING creates a natural, real HEDGE. It tells us where we are in the cycle and ensures timely entries/exits, typically from 3 days to 3 months in advance of most, if not all major market moves.
  • Correct Order placing; Cost Averaging; aversion to stops and monitoring relationships between positions is important to verify when selecting the Investment Manager.
  • Real transaction costs (COMMISSIONS) should not exceed 1 to 2% of account value annually.
  • COMISSION BASED payment of Management Fees should raise serious objections, unless it saves money for investors.
  • PERFORMANCE BASED fees should be encouraged. The more motivation the Manager has to make money, the better it is for the investor.
  • Investor’s capital can be fully guaranteed, if the account has enough equity. Today, ETFs (Exchange Traded Funds) could provide early redemption for investors wishing to redeem their funds at the prevailing market.

EXECUTION

With concept and method in place, EXECUTION is verified by the long term record .

Audited accounts can be misleading and are useless unless the original – not a copy, of the auditor's report with all annotations is produced. For the track record to be a valid guide to real performance, it must disclose CME. . The usual disclosure statement: "past performance is no guide to future results" negates the value of any «audit». It says clearly why audits without CME are useless.

The best and only real way of checking performance, is to see it unfold day-by-day in accordance with the pre-agreed CONCEPT and METHOD (real due diligence).

 Historically, taking inflation and currency risks into consideration, the value of investments should at least double every four years with a Sharpe ratio which is a measure of risk adjusted return of no less than 1.5. Anything less, and investors are likely to be making someone else rich at their expense while taking unnecessary risks.

CME is the process by which the PSS provides increased profitabilty from directional market volatility, while growing  investments in both ascending and descending markets through broad asset class diversification.
The PSS explores and identifies over a long time each market's cyclicality and resultant volatility. Its time tested methodology allows the system to pre-determine the maximum capital utilization in accordance with the Bank for International Settlements' Capital Adequacy Requirements. This - provided no emotional interference - produces consistent high returns with controlled occasional medium to high volatility. Leverage/gearing in the PSS diversified accounts has not exceeded 4.8:1. Others have tried for years to reach the same consistency of returns, but probably the pressure to reach an acceptable level of perceived risk has made this difficult to achieve. Measuring risk by unrealized 'draw-downs' without relating them to the earning power of the system i.e. the time to recover such 'draw-downs' would appear to be an industry-wide fallacy.