Q:  What is your investment philosophy?

A: Our core belief is that you have limited time and limited money to invest, so we aim to be in the strongest stocks we can find. I developed a theory called ‘digitized investing’ back in 1992 with the idea that there has to be a pattern in the strongest stocks. Our strategy is entirely computerized, so we basically analyze 10,000 to 12,000 U.S. stocks every week.

When I first started, I was looking for the elements that compose emotion, or the pulses of confidence. It is related to the Quantum Theory of Max Planck, who found out that light came in pulses when everybody thought that it was a straight line. So I decided to look for the pulses of confidences in the charts and I’ve digitalized emotions by putting a number on the emotion.

Everything we do is based on performance. That’s our philosophy because performance is the only reason for hiring someone to do your investment work. The objective is to get the best return for all our clients.

Q:  It is simple to understand but hard to achieve.

A: It is hard to achieve but we’ve been able to do it. We’ve gone back to 1970 to test our model and it works. We believe that in the stock market buying is important, while selling is imperative. We’ve been able to find out how to digitalize the fear factor or the time when people want to get out of the market.

For example, on September 10, 2001, the day before the tragedy in New York, we sold 23% of our stocks because we could see it in the charts. I’m not a conspiracy theory person but there was so much volatility in the days before the event, that even though we had no idea what was happening, we knew we had to get out of the market.

Q:  Could you explain the meaning of ‘cyclical’ in the fund’s name?

A: We chose this name because we look at the overall market to see when it’s time to be long and when it’s time to be short. That’s very different from long-short funds that are typically long and short simultaneously. We have developed a deductive way of looking at the big picture to decide when to be long or short.

I believe that this is the first cyclical equity fund in the US. There are cyclical sector funds but no cyclical market funds. We didn’t know that when we started; but the name describes what we do, always changing with the cycles of the economy.

Q:  So you primarily look at the cyclicality of the market and try to benefit from it. Is that correct?

A: Yes. The cycle has just turned in an upward pattern approximately nine weeks ago and we moved from being 60% in cash to buying strongly. Prior to that the market was displaying a sideways pattern and the formulas weren’t pushing out many stocks. But now there’s something happening and although I don’t know what it is, I can tell you the equity market looks strong.

Q:  Why do you believe that this is a better way to manage money?

A: To explain why we believe in this approach, I’ll give you an example. If you’re buying one hundred shares of Bristol Meyer, Gina’s buying a hundred shares of Bristol Meyer, and I’m selling one hundred shares at the same time, the price should go up. If on the next day you sell Xerox, Gina sells Xerox, and I buy Xerox, the price should go down. That’s what technical investing is.

Everything I do is watching price and volume. It has taken me years to develop the formulas. With technical investing there are many indicators and I have never relied on the books on technical investing. I don’t want to do what everyone else is doing.

Overall, we are looking for the strongest stocks and we’re trying to get rid of the randomness. We try to make sure that all of our stocks are going in the same direction. In the past, six out of ten stocks have been winners. We also find that the more diversification we have, the less risk we take. The diversification of equities falls among many sectors. So we’re careful about not being concentrated in any one area.

The model just happens to work. We take losses but they’re small. When the indicators come up, we don’t try to rethink or question our decision, and it works. We stick with this disciplined approach. Our historical performance numbers speak for itself. The good thing about our strategy is that on the upside, we almost double the market, while on the downside we are lose less than the market.

Q:  How do you select which stocks to buy after deciding whether to be long or short?

A: We rely on the inductive way or the bottom-up approach. We buy one stock at a time and the sector distribution is an outcome of that process. We never look at sectors when selecting stocks; we only look at individual stocks. The system that we have picks the stocks for us so there are no emotions. We let the program run and it picks where we need to buy and where we need to sell.

For example, we were in about 25% in the energy sector over the past two years, while today we are only in 2% of that sector. That’s because three months ago the fear factors started to show up and we started to sell off the energy stocks when crude oil was still hitting new highs.