~ Asset Allocation - Asset Management~
The Courtney Smith & Co. Approach is to use a two step process to determine the asset allocation.
The first step is to create a diffusion index of the stock market indicators discussed above. A diffusion index simply adds up the percentage of the indicators that are bullish. For example, if seven of the ten indicators are bullish then our base allocation is 70% long the market. As another example, if five of the ten indicators are bullish then we would only recommend being 50% long the market with the balance of the account in cash or fixed income securities.
The second step is to make minor adjustments to the base asset allocation. We do this to account for special circumstances that are not considered in the indicators that we use for asset allocation. For example, the effect of changes in the tax code are not considered because they happen irregularly. We allow a deviation from the asset allocation model of 10% on either side of the suggested allocation depending on the qualitative judgment of the Chief Investment Officer.
This two step process then gives a final asset allocation to the stock market. We invest primarily in the stock market because studies have shown that long term investment in the stock market will outperform fixed income investing. We therefore wish to have the odds in our favor.
The balance of the account is then invested in some type of fixed income. The length of the maturity of the fixed income is determined by the same process as the asset allocation of the stock portion of the account. Courtney Smith & Co has developed a model for investing in the bond market. We invest the balance in bonds when the model is bullish and invest it in money market instruments when the model is bearish.
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Smith & Co. is an investment management company
specializing in stock market timing and stock selection.
© 2002-3 Courtney Smith & Co., Inc.
Smith & Co.
Box 7603, New York,
TEL: (917) 327-3536
FAX: (270) 626-6500
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