How do you make your investment decisions? | Client Update February 2024

This is the precise question we answered earlier this week, during our monthly client presentation. During this conversation, our lead investment strategist, Clint Sorenson, shared our structured Investment Framework — a set of defined rules and fact-based decision-making processes we follow to make portfolio decisions. Clint is the author of this four-part framework, and we've studied it, tested it, and refined it over the years. 

As a result, we've become fluent in this framework, and it is simple and straightforward to us. However, we know it may seem like Greek to those who do not have the same familiarity with it. 

I mean, c'mon now! How many people talk about "mean reversion" on a daily basis? Total nerdom, folks! 

To help you begin your own path toward fluency in the Sound FSG and WealthShield Investment Framework, here are the Cliff's Notes of the four steps in our process:

• Expected Returns: The old adage “buy low and sell high” is a pipe dream without a method to measure low and high. Therefore, we measure the current market value and compare it to its historical average. Markets have always reverted (down) to or grown (up) to their historical average, which is called mean reversion. This method is highly accurate; however, it is very slow to unfold.
  
  
• Business Cycle: We believe the markets are a scoreboard for the economy. So, if we can measure the economy then we believe we can determine where to invest. We believe, “If you get the business cycle right, you get the market cycle right.” Therefore, we observe economic data to determine if the economy and inflation are growing or contracting. 
  
  
• Monetary Policy: “Don’t fight the Fed” is a rule many investors have learned the hard way. The US Federal Reserve has tremendous control over the world's financial systems, especially the US markets. Therefore, we observe whether they are fueling economic growth or applying the brakes with their Fed Funds Rate, balance sheet, and public “Fed Speak.” Are they trying to grow the economy by making money cheap or fighting inflation by making money expensive or something in between?
  
  
• Market Trends:  “Trends tend to trend.” If you put us on an island and gave us only one number to follow, we want to see market price trend data. It is nothing fancier than measuring the markets going up or down. Famous traders have built careers through trend-following investing. However, it is the most fickle and short-term of our measurements.