A little history is needed

What, you thought that we came up with our investment strategy overnight? Well, let me tell you that it took all of Thanksgiving weekend to think this up. It's amazing what you can come up with given a pad of paper and a couple of bottles of Jack Daniels.

OK, the truth is that this concept has been brewing since 2002, and was put into practice with real client money almost four years ago. So we have had 15 quarters to work through things. We set the S&P 500 as a target each quarter, and tried to beat it in a variety of different market scenarios (up market, down market, volatile, calm, different asset classes leading the way, etc). The net result was that we beat it 14 times out of 15, and the one miss wasn't bad at all. We had eleven up months in a row at one point, and consistently stayed about 7% ahead of the market annually. Meaning that the market averaged about 10% up over that time, and we were up a little more than 17%. Certainly not like Renaissance or D.E. Shaw, but then again, we were operating with many restrictions in place in a brokerage environment. Sort of like backstroking through Cheese Whiz with your right hand handcuffed to your ankles.

Since the other main goal was to bring the volatility down, we worked hard at doing that at the same time. Equities had a standard deviation of around 15% during that time, we got ours down to 4% annually, below the price variation of bonds. There was some luck in there, but enough skill seeped through that we thought the concept was proven. That and a stackful of papers from academia that said the strategy was solid turned out to be more than enough to launch.

It also doesn't hurt that two of us are ex-Goldman Sachs guys, and every day there is something in the paper about how ex-Goldman guys are running the world. We don't plan to run the world, but we do plan on running most of the money.

So we did not enter into this little venture lightly. We figured if big institutions with $100 million+ to throw around didn't like us personally, they might at least like the past investment history, or the academic seal of approval, or the pedigree, or the fact we are not in New York. Give them a big enough menu, and they'll find something they like.