Hartshorn & Co., Inc. believes that the economy and all markets (i.e. stocks, bonds, real estate, oil, gold, ect.) go through periods of boom and bust cycles. Therefore it is vital to know which stage of the cycle a market is in before committing your whole life savings. Markets basically move in three directions: up, down, or sideways. For example, when the stock market moves 3 out of 4 stocks will move with it either up or down. Hence, it is important to know what the present market climate is so you have the wind at your back and not in your face. Being fully invested in stocks when the overall market is trending down is a recipe for disaster.

Followers of the long term buy and hold strategy believe that market risk is always worth taking and that investors should own a specific percentage of stocks and bonds regardless of valuation or market action. We are not believers in this theory. We believe that one should have more money invested in stocks versus other asset classes when the risk is lower and less when it is higher. There may be times when cash, bonds, or REIT’s will be better investments than stocks that are dropping.

Our discipline does not require us to predict the future. Rather, we attempt to objectively identify the present by analyzing technical and fundamental data. We are really working with probabilities. It is not unlike what a physician does during a physical. They take tests and then analyze the information to get a sense of where a person’s health stands. If they are over weight by 100 pounds, their cholesterol is high, they don’t exercise or eat right and they have heart disease in the family. The probability is higher that they are at risk for a heart attack. The markets also have various levels of return vs. risk. For example, there is much more risk if the P/E ratio is at 35, interest rates are rising, CPI is rising, Advance/Decline line is falling, Investor’s Intelligence shows 55% bulls and 17% bears, and we are in the middle of summer.

Our objective discipline helps us determine what to buy and when to buy it. However, most importantly it tells us when to sell. Managing risk is the most important component of any investment strategy. If you lose 50% of your portfolio value you need to earn 100% just to get back to even. This is why the key to making money in the market is to keep losses small. We use strict money management rules to determine how much of a stock to buy and when to sell if it goes against us. It ensures against holding an Enron (which went bankrupt) or a once great blue chip like AT&T (which has traded sideways for 30 years). Legendary financier Bernard Baruch said “even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly”.

The reason many investors and financial professionals underperform the market is that they do not have a sound investment strategy, they fail to develop an objective written plan, they do not have a sell discipline, and they let their emotions get in the way of their investment decisions. As many investors have learned during the past 100 years the so called experts such as analysts, mutual fund managers and brokers are hardly ever correct. Follow their advice and you could have many sleepless nights or worse…end up in the poor house. We believe that our approach offers a better way to help you reach your financial dreams.