Welcome Letter for AQM Clients

Each client is a on different investment journey; each holds onto a multitude of expectations and goals.

New AQM clients receive the below Welcome Letter to orientate them to the investment strategy – and as a gentle reminder that they too play a role in the investment journey.

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Dear Client,

Thank you very much for your subscription to AQM.

We have invested years of work into the strategy but there is a missing piece: You.

AQM is designed to be a sustainable, resilient investment strategy and the final piece of our puzzle requires your participation and discipline.

First, be aware that AQM is an equities-driven, not a fixed income, fund. Do not divide 25% CAGR by 12 months. A 25 percent annualized return is a long-run target. i.e. The long-run annualized return of bountiful years and a few mediocre years gets us to 25 percent CAGR. Expecting a clockwork 2 percent monthly return (25/12) conflates the nature of an equities-driven fund with that of a fixed income fund.

Second, large drawdowns are hazardous to wealth. A fund that delivers 7 percent annual return and experiences 50 percent drawdown will take 11 years to recover; a second fund that delivers a similar 7 percent annual return but, having downside protection, 15 percent drawdown will take only 3 years to recover. In the great game of investing, defense is just as, if not more, important than offense.

In simple terms, we seek to fulfill the Goldilocks condition: Not too aggressive in outperformance and moderate losses during flat/negative periods; a strategy that is “just right” to deliver 25 percent CAGR in the long run. (In technical terms, our target Sharpe Ratio is 1.5 which is very decent.)

Lastly, because the market is predictably unpredictable and erratic, we have front-loaded the analysis into our trading models¹ in order to make objective, disciplined trading decisions. Think of this approach as a dispassionate, Vulcan-like style of investing which is neither reactive nor emotive to market fluctuations.

Hence, to be an AQM investor is to lean into statistics (signal) and suppress the urge to react to short-term directional trends (noise) – it is the disciplined investor who pockets the long-term reward.

In sum, wealth is protected by diversification and, as an informed and disciplined investor, you now have an edge with your participation in AQM.

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¹ AQM’s rules-based trading model removes behavioral bias from the buy-and-sell decision-making process; and lessens the chance that the portfolio manager will make poor decisions based on emotional responses to market conditions. For more, see this article “Behavioral Finance and Investing: Are you Trying Too Hard?”