Investment Strategy

My objective is to generate absolute returns every year without exception, regardless of market conditions. If this objective appeals to you too, we cannot limit ourselves to conventional Wall Street thinking. To just keep hoping that the stock market will perpetually rise requires a blind faith that I don't have.

The Substantial Investor approach is to structure a portfolio with similarities to a well-managed university endowment. To employ a combination of traditional and non-traditional asset classes intended to reduce volatility in the short term and consistently compound capital over the long term.

Note that I never receive compensation from any firm or individual discussed in The Substantial Investor. My newsletter content is objective, with the intent of benefiting you.

We as investors have these instruments at our disposal:

Alternative assets

• Fund of funds
• Hedge funds
• Private equity
• Venture capital
• Commodities
• Precious metals
• Real estate
• Currencies

Alternative assets (almost everything other than stocks, bonds, or cash) can be complex and confusing. In The Substantial Investor, I seek to make them more understandable, and I offer thoughts on which strategies are compelling.

I believe that to have a deeper understanding of a subject, you must participate in it directly. Many investment advisors don't qualify to participate in some of the investments that we discuss. Like a military officer who is all text book and has never been battle tested, their only familiarity with the subject is theoretical — it isn't based on personal experience.

Proprietary stock selections

I manage a portfolio of long and short stock positions. Essentially, I'm running a family hedge fund. Managing your own money offers four powerful advantages:

• Tax efficiency
• No management fees
• Control
• Ability to take less liquid positions (which can offer unique and large gain opportunities)

I present ideas on both the long and short sides. For those who have never taken short positions, I will introduce you to the technique and how it can be a valuable tool for mitigating portfolio volatility.

Structured products

Structured products are financial instruments that allow investors to participate in sophisticated strategies with relative ease.

The difficult part becomes finding the select few that come with acceptable terms and a satisfactory risk/reward combination.

I scour the SEC filings and strip away the complications to find compelling investment candidates.

Mutual funds

Some investors consider mutual funds to be a somewhat pedestrian investment and may therefore ignore them. In my opinion, this is a mistake. Rather, investors are best served by focusing on managers' ability to allocate capital rather than the legal structure from which they do it.

Mutual fund selection is not about chasing last year's leaderboard, where random probability can play a large role in the outcomes. It's about analyzing a manager's investment process, getting comfortable with how the results were achieved, and assessing the likelihood of future success.

Fixed income strategies

• Municipal and treasury bonds
• Foreign CDs and bonds
• Corporate and high yield bonds
• Convertible and preferred closed-end funds
• Money markets

Most fixed income investments lose value when interest rates are rising. But it's a big world, and all global rates don't move in the same direction at the same time. And some fixed income investments can actually appreciate in a rising rate environment.

We examine these ideas as well as other strategies incorporating the use of tax-deferred and taxable accounts.

To explore these ideas with us, we invite you to subscribe to The Substantial Investor.

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