Asset Allocation

View Mike’s Article: Liquidity in a World of Unusual Risk

On the surface, the concept of asset allocation sounds rather simple. Choose a combination of investment opportunities that offers good potential risk vs. return and divide the available principal among those investments to avoid having all your eggs in one basket. Not too difficult, right? Wrong.

The idea is quite straightforward, but implementation of it can be extremely complex and require extensive knowledge and expertise. Over decades of direct, practical experience, Mike Vlasic has developed a philosophy and approach that has proven to be exceptionally effective – and far more successful than strategies driven by conventional wisdom. We call it Fundamental Asset Allocation:

“We achieve excellent investment results by doing our homework, staying on top of the market and going for a better average by hitting lots of singles and doubles instead of swinging for the fences. Sustained success over the long term earns a much better ROI than some big wins accompanied by losses.” – Mike

At the core of Fundamental Asset Allocation are these convictions:

  • It is far more difficult to re-earn lost capital than to avoid losing it.
  • Having a higher win-percentage at lower return rates is better than the reverse.
  • Successful investing takes honest assessments, sound strategies and dynamic management.
  • Sustained success is extremely unlikely without discipline and experience.
  • Even short-term investments must be viewed in a broader long-term context.

There are five components to this process:

Defining Investor Characteristics / Creating Investor Self-Awareness

  • Who are the investors?
  • What are they trying to accomplish?
  • What is their tolerance for risk vs. reward?
  • Do they have realistic expectations?

Establishing Investment Goals.

  • What is available for investment? How much? What kind of existing assets?
  • Is it a short-term or long-term investment?
  • What are the tax considerations? Income tax? Wealth transfer taxes?
  • Is cash flow an issue?
  • Is there a succession or exit strategy needed?

Understanding Specific Investment Behaviors

  • What investments will be considered?
  • What is the historical behavior of these investments?
  • How will the investments behave in the current economy and climate?
  • Will the investment characteristic change over the relevant time frame?

These first three components help define “the Universe of Acceptable Outcomes.” We want to create a situation where we are exposed to as many “Acceptable Outcomes” as possible and avoid or reduce our exposure to unacceptable outcomes, i.e., losses or failures that we cannot recover from.

Creating an Asset Allocating Recipe

  • How should available capital be distributed among target investments?
  • Will the allocation remain constant or change over time?
  • How might the allocation evolve or react to market conditions?
  • How will investment profits be distributed or reinvested?

Managing the Principal and Profits

  • What will be the actual investment plan?
  • How will the provisions of the plan be implemented, and by whom?
  • How will results be tracked and reported?
  • How will investment profits be distributed or reinvested?
  • How and when will the plan be reviewed and updated?
  • What is the succession or exit strategy, if applicable?

Expert Execution – effectively conceiving, planning, executing and managing all of these activities requires highly specialized knowledge and experience. Mike has been successfully implementing his asset allocation approach for over two decades. The result … sustained success.