Rules Based Strategies

Rules which help guide and protect your portfolio.

What does it look like to follow rules in an investment strategy?

To help you understand what it’s like, we often like to use the demonstration of obeying traffic lights. Following rules in an investment model is much like following the rules of the road. If the light is red, you stop. If the light is green, you go. Each of these signals gives us the queue we need to buy in and sell out of the market. We do this to reduce the amount of emotion involved with decision making. Greed and Fear often rule the market. A system of rules is our defense against that.

The advantage of using rules.

The beauty of a rules-based system for managing investments is that it is strict in nature. Just like logic in coding, it often produces results that are easier to understand, project, and interact with. It both simplifies the decisions being made and plots a course for us as we navigate the market for each model. This is often different than the tactics employed by other managers which can sometimes rely on gut intuition, predictions, or false investing theory. Investors are often susceptible to speculation and irrationality. This only serves to feed the market with fear and greed.

Whether you decide to invest with us or any other management company, keep these principles in mind. Search for a company who can say “these are the rules and we abide by them.” Search for a company who can pinpoint the reasons behind their decisions. This systematic approach might be the key to achieving your financial goals. Ultimately, we hope we can serve you in this way. More than that, we hope you will see that our rules based strategies provide a predictable management style.

How Are Rules Applied?

Momentum Based Investing

This is the first stop in our rules. Our bull-bear indicator determines the status of funds, sectors, and positions. While each model is different (depending on if you invest conservatively or aggressively) we only invest in positions that have trended in. The momentum of a position determines the viability of its participation in our models.

Downside Risk Controls

This is the next natural stop in our application of rules. Each of our downside risk controls act as hard stops for a position. If any of them are triggered, a corresponding action is taken. Each model handles this differently. Depending on your risk profile, certain models will be more suitable.

Facts and not Predictions

This is the last and most important application of rules in an investing strategy. At Harvest, we focus on facts and not predictions. The whole purpose of a rule driven strategy is that there is a logical way of understanding what is going on. We don’t go out on a whim. Our decisions our founded on what’s going on, not what ‘might’ happen.

Other Investment Philosophy Resources

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