Investment Philosophy

Our investment philosophy is founded upon the principles of Dow Theory and compounding, and is summarized by the following rules:

  1. An investment portfolio should always been aligned with the currently identified secular primary trend.
  2. All portfolio growth objectives are accomplished via compounding.

Primary Trend Alignment

The primary trend is the most powerful force behind market movements; it is the fundamental driver that propels markets higher and lower over the long-term. Identified over 100 years ago by Charles Dow, the originator of Dow Theory, the primary trend is always in control of the underlying direction of a given market. Secondary and daily market movements control price direction over the short-term, but the primary trend will always reassert itself as long as it is in effect, which is precisely why long-term, investment portfolios should always remained aligned with it.

As you may suspect, there are two types of primary trends: bull and bear. Dow Theory also identifies three distinct phases in each type of primary trend, summarized in the table below:

Primary Trend First Phase Second Phase Third Phase
Bull Accumulation Recognition Euphoria
Bear Distribution Recognition Despair

Each primary trend phase exhibits distinct characteristics, enabling its identification. Once the current primary trend phase is identified, the investment portfolio can be properly aligned with the primary trend. For a detailed discussion of the primary trend and its phases, see this article.

Growth Through Compounding

Compounding is the process through which the combination of investment principal and reinvested interest appreciates over long periods of time. It may not be fast or flashy, but it is the only guaranteed path to acquiring real wealth, so it is our investment strategy of choice. To learn more about it, see this article.