Bolen | Dodson & Associates’ investment philosophy is the result of our twenty two plus years in the investment business. Our process integrates fundamental and technical analysis and is logical, systematic and disciplined. It is long term in nature and is tax efficient.  

          We believe, and evidence indicates, the market is semi-efficient. That is, it is difficult to out-perform the broad market averages consistently, net of fees, transaction costs and taxes. However, it is our position that adding incremental return is possible and worthy of pursuit. By knowing the limitations imposed by the market’s efficiency, coupled with a logical, systematic and disciplined investment approach, we put the odds in our favor to succeed in our endeavor to produce acceptable risk-adjusted returns over the long term.   
 
          We construct diversified portfolios of marketable securities that are consistent with your time horizon and ability to handle interim volatility. That generally means a greater or lesser percentage of equities and a longer or shorter maturity of fixed income securities. Our basic philosophy is that that markets follow earnings so don’t overpay for earnings; markets and earnings revert eventually to the mean or average and diversification is important in lowering portfolio volatility. We also believe in having circuit breakers in our process to avoid sustained losses. We use technology to help us add value through systematic rebalancing. 
 
          Bolen | Dodson & Associates combines fundamental and technical analysis to create individualized portfolios, managed on a tax-efficient basis. Regarding market fundamentals, we consider economic and earnings growth, valuations and monetary policy (interest rates, liquidity, inflation, etc). Technical analysis deals with investor psychology and changes in supply and demand. Factors we consider include trends, market breadth and investor sentiment, among others. We use relative strength to help us with size/style and sector selections. Owning fundamentally sound securities and/or sectors at appropriate valuations is your first line of defense. Technical analysis tells you when to purchase or sell the security. Timing the commitment is a crucial step to maximizing risk-adjusted returns.  

          The broad stock market has an average annual return of about 11%, plus or minus a standard deviation (measure of volatility) of about 20%. What this means to investors is that about 2/3rds of the time, the market is expected to produce an annual return between -9% and +31%. About 95% of the time returns are between -29% and +51% and fully 99% of the time returns are between -49% and +71%. One of the axioms of investing is that markets revert to their mean or average return over time. Reversion to the mean is essentially the reason some investors are comfortable with “buy and hold” strategies. Eventually, the beaten down market is expected to “return to the mean.” Most of the time, it pays to simply rebalance portfolios opportunistically and thus take advantage temporary dips. It is those “not” times we want to avoid.  

          Diversification across 7-8 low-correlation asset classes’ is an important component of a properly constructed portfolio. Low correlation means some things are going up while some may be going down, but over a market cycle, each component pulls its own weight. As such, it helps to lower overall portfolio volatility while attaining desired returns over time.  

          As evidenced by the so-called Great Recession, markets and portfolios can be quite volatile in the short term in spite of our best efforts. Most of the time, markets tends to dip and then recover. However, every few years or so, markets tend to fall more dramatically. We use moving averages as circuit breakers in an effort to mitigate losses in a protracted downward moving market and thus strive to protect your next egg.