At Starfox Financial Services, we perform our own in-house analysis utilizing a broad range of indicators and data.
Methods of Analysis:
- Charting: In this type of technical analysis, we review charts of market and security activity in an attempt to identify when the market is moving up or down and to predict when how long the trend may last and when that trend might reverse.
- Cyclical Analysis: In this type of technical analysis, we measure the movements of a particular stock against the overall market in an attempt to predict the price movement of the security.
- Fundamental Analysis: We attempt to measure the intrinsic value of a security by looking at economic and financial factors (including the overall economy, industry conditions, and the financial condition and management of the company itself) to determine if the company is under-priced (indicating it may be a good time to buy) or overpriced (indicating it may be time to sell). Fundamental analysis does not attempt to anticipate market movements. This presents a potential risk, as the price of a security can move up or down along with the overall market regardless of the economic and financial factors considered in evaluating the stock.
- Technical Analysis: We analyze past market movements and apply that analysis to the present in an attempt to recognize recurring patterns of investor behavior and potentially predict future price movement. Technical analysis does not consider the underlying financial condition of a company. This presents a risk in that a poorly-managed or financially unsound company may underperform regardless of market movement.
Investment Strategies We Use:
Our investment policy is based on five basic rules of investing; diversify, buy value – sell expensive (buy low-sell high), identify risks and take steps to reduce them, control costs, and have a personalized plan. Our strategy is based on an understanding that risks and opportunities associated with various asset classes change constantly as a result of changes in the market and economic conditions. We believe it is vital to tactically adjust asset allocations as market and economic conditions change.
We utilize an investor profile to obtain detailed client information and document client risk tolerances and investment objectives. Information is reviewed annually (or as needed) and changes to client objectives or tolerances are noted. Included on the investor profile is a section used to determine maximum risk tolerances, including a description of desired stock/bond allocations.
- Long-Term Purchases: When utilizing this strategy, we may purchase securities with the idea of holding them for a relatively long time (typically held for at least a year). A risk in a long-term purchase strategy is that by holding the security for this length of time, we may not take advantages of short-term gains that could be profitable to a client. Moreover, if our predictions are incorrect, a security may decline sharply in value before we make the decision to sell. Typically we employ this sub-strategy when we believe the securities to be well valued; and/or we want exposure to a particular asset class over time, regardless of the current projection for this class.
- Short-Term Purchases: When utilizing this strategy, we may also purchase securities with the idea of selling them within a relatively short time (typically a year or less). We do this in an attempt to take advantage of conditions that we believe will soon result in a price swing in the securities we purchase.
- Short Sales: We borrow shares of a stock for your portfolio from someone who owns the stock on a promise to replace the shares on a future date at a certain price. Those borrowed shares are then sold. On the agreed-upon future date, we buy the same stock and return the shares to the original owner. We engage in short selling based on our determination that the stock will go down in price after we have borrowed the shares. If we are correct and the stock price has gone down since the shares were purchased from the original owner, the client account realizes the profit.
- Margin Transactions: We will purchase stocks for your portfolio with money borrowed from your brokerage account. This allows you to purchase more stock than you would be able to with your available cash, and allows us to purchase stock without selling other holdings.
- Option Writing: We may use options as an investment strategy. An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an asset (such as a share of stock) at a specific price on or before a certain date. An option, just like a stock or bond, is a security. An option is also a derivative, because it derives its value from an underlying asset. The two types of options are calls and puts:
• A call gives us the right to buy an asset at a certain price within a specific period of time.
• We will buy a call if we have determined that the stock will increase substantially before the option expires.
• A put gives us the holder the right to sell an asset at a certain price within a specific period of time. We will buy a put if we have determined that the price of the stock will fall before the option expires.
• We will use options to “hedge” a purchase of the underlying security; in other words, we will use an option purchase to limit the potential upside and downside of a security we have purchased for your portfolio.
• We use “covered calls”, in which we sell an option on security you own. In this strategy, you receive a fee for making the option available, and the person purchasing the option has the right to buy the security from you at an agreed-upon price.
• We use a “spreading strategy”, in which we purchase two or more option contracts (for example, a call option that you buy and a call option that you sell) for the same underlying security. This effectively puts you on both sides of the market, but with the ability to vary price, time and other factors.
- Frequency of Trades: Trading frequency in client portfolios is typically determined by the need to address risks or seize an opportunity. A typical client account may experience trades as frequent as once or twice a month, or as little as once per year, depending on market conditions and client’s need.
- Rebalancing: We believe rebalancing to maintain the proper risk exposure is necessary.
Because risks and opportunities within different asset classes are subject to change, based on current or expected market conditions, we employ a unique strategy when rebalancing. We will reduce exposure to a particular asset class when the portfolio has become significantly overweight, the asset class has become expensive or the asset class has become too risky. We will increase exposure to an asset class when the portfolio has become significantly underweight, the asset class is of significant value or the asset class present has added opportunity.
- Mutual Funds: Our primary concern in selecting and evaluating mutual funds for use in a client portfolio is the need they address or its ability to exploit an opportunity better than other investment options. When selecting a mutual fund for use in our portfolios, we generally consider cost, management philosophy and history, objective, track record, tax efficiency, holdings, and the availability of other investment options.
- Risk of Loss: Securities investments are not guaranteed and you may lose money on your investments. We measure risk on three levels. In broad terms, we identify total portfolio Beta to ensure proper exposure to equities and duration and credit quality to asses fixed income investments. We tactically adjust Beta, duration and credit quality to achieve desired risk exposure. We also monitor for risks that may affect individual securities or specific types of investments or asset classes. We believe that risk is best addressed through tactical asset allocation rather than diversification across all asset classes. Owning or avoiding specific asset classes at the right time is a key component of risk management. We do, however, believe broad diversification within asset classes is an important risk management measure.
Investing in securities involves risk of loss that clients should be prepared to bear. While the stock market may increase and your account(s) could enjoy a gain, it is also possible that the stock market may decrease and your account(s) could suffer a loss. It is important that you understand the risks associated with investing in the stock market, are appropriately diversified in your investments, and ask us any questions you may have.