The Importance of Active Management
The principle advantages of active risk management over buy and hold strategies are to provide investors with investment vehicles which:
- Utilize money market as a safe harbor
- Seek growth regardless of market direction
Conservation of Assets
Although investors have been taught to buy and hold investments for the long term, this strategy does not provide protection from the depth and duration of severe market downturns.
In fact, if you missed the best ten days of the stock market from 1984 through 2008, your annual return would have fallen from 7.1% to 4.1%. But if you missed the 10 worst days, your return would have increased to 11.2%. Missing both the best and the worst 10 days generated an 8.2% return, or 14% better performance than the buy and hold results.
Although no one can foresee which market days will over perform or which will under perform, by using active management and the inverse index mutual funds, Purcell’s actively managed strategies attempt to preserve capital and will position your assets in the safety of the money market fund until opportunities for growth appear.
S&P 500 Index Bear Market Study
September 1929 through 2008
| Bear Market | Duration | Percent Decline | Time Needed to Break Even |
| Sept. ’29 – June ’32 | 33 months | 86.7 | 25.2 years |
| July ’33 – Mar. ’35 | 20 months | 33.9 | 2.3 |
| Mar. ’37 – Mar. ’38 | 12 months | 54.5 | 8.8 |
| Nov. ’38 – Apr. ’42 | 41 months | 45.8 | 6.4 |
| May ’46 – Mar. ’48 | 22 months | 28.1 | 4.1 |
| Aug. ’56 – Oct. ’57 | 14 months | 21.6 | 2.1 |
| Dec. ’61 – June ’62 | 6 months | 28.0 | 1.8 |
| Feb. ’66 – Oct. ’66 | 8 months | 22.2 | 1.4 |
| Nov. ’68 – May ’70 | 18 months | 36.1 | 3.3 |
| Jan. ’73 – Oct. ’74 | 21 months | 48.2 | 7.6 |
| Nov. ’80 – Aug. ’82 | 21 months | 27.1 | 2.1 |
| Aug. ’87 – Dec. ’87 | 4 months | 33.5 | 1.9 |
| July ’90 – Oct. ’90 | 3 months | 19.9 | 0.6 |
| Sept. ’00 – Mar. ’03 | 30 months | 49.0 | 6.8 |
| Oct. ’07 – ? | ? | 48.9 | ? |
Source: Telephone Switch Newsletter Summer 1992. Updated through 2008 by Hepburn Capital Management.
Few investors have the luxury of waiting out the 17 to 18 years of underperformance a bear market can bring. Typically, individuals don’t start to accumulate substantial funds for investing until their 40s and 50s when their children are grown and many of the major purchases – a home, cars, and such – have been made. With just 15 to 20 years to accumulate the majority of one’s retirement assets, it’s easy to invest at the wrong point in a market cycle.
The Dow Jones Industrial Average is unmanaged and unavailable for direct investment. Returns do not reflect any dividends, management fees, transaction costs or expenses. Past performance is not indicative of future returns. All investments have the potential for loss as well as gain. Contact your financial advisor to discuss this concept further.
Grow Assets in any Market Environment.
Many of our investment strategies have absolute return objectives seeking positive returns regardless of market direction. Such strategies are the product of the advent of inverse index mutual funds thus allowing for growth regardless of market direction. Our strategies may utilize inverse funds during market downtrends.
If you’re looking for a risk managed alternative to buy and hold, click here to learn about our investment strategies.