A Rules Based Equity Investment Strategy to Grow Capital and Manage Risk

1. The Disciplined Portfolio
A Rules Based Investment Strategy to Grow Capital and Manage Risk
Nadeem A Mian
Vice President & Investment Advisor
PACE Securities Corp.
nmian@pacesecurities.com

2. Investment Philosophy
“The essence of investment
management is the management of
risks, not the management of
returns.“
- Benjamin Graham

3. Mandates & Guidelines
• Focused Portfolios
• 10-15 names & ETF’s
• Mid to Large Cap Focus
• Liquidity is important
• Actively Managed
• Portfolios are re-evaluated frequently
for new ideas and sell candidates
• Willingness to move into cash when market conditions dictate
such.
• Focus on Leadership sectors
• Will only recommend sectors that are participating in market
advance

4. Hybrid Approach
• Consider the whole picture
• Market and sector forces account for 80% share price movement
• But investors spend 80% of their time analyzing the individual
company level
• Company fundamentals account for only 20%
• Utilize a hybrid Top-Down and Bottom-Up approach

5. Methodology
Manage Exposure – Top Down Security Selection – Bottom Up
When to Buy…When to Sell What to Buy…What to Sell
Assess Market & its Direction Earnings & Revenue Analysis
Quantitative & Technical Analysis “Smart Money” Assessment
Focus on Leadership Sectors Leadership – Best of Breed
Willingness to move to Cash New Products, Management &
Others

6. Buying Rules
Fundamental Analysis:
• Accelerating growth in revenue, cash flows and earnings
• Positive earnings surprises and guidance vs market expectations
• Improving gross margins
• Return on Equity ratio of 17%+
Quantitative & Technical Analysis:
• Improving institutional sponsorship
• Improving relative strength vs. its sector or the market
• Increasing volume of trade on positive days (accumulation)
• Low volatility price patterns during market weakness

7. When Buy & Hold goes wrong???
• A- Bearn Sterns upgrades to
outperform
• B- Canaccord upgrades to
outperform
• C-RBC Capital Markets upgrades
to Sector Outperform
• D- Citigroup upgrades to Buy
• E- RBC upgrades to Top Pick
• F- Hudson Securities reiterates
• Buy
•
• G- Barclays downgrades to
underweight
A
B
C
D
E
F
G

8. Selling Rules
• Buy, Hold & SELL!
– Hold winning positions and sell losing positions
• Study overall market direction using Quantitative & Technical
Analysis.
• No new positions during downturn.
– Will not try to “Catch the Falling Knife”
• Limit all losses to ~10% by implementing stop losses on
purchases; this price never get adjusted down.
• Raise sell limits as stock moves higher.
– As profit positions start to roll over
• Consider using Reverse ETF’s and option hedging strategies
during downturn.

9. In Summary – A Strategy for all Investors
• Management of Risk is the first priority
• Rules-based process encourages disciplined and structured
habits, while reducing emotional decisions
• Leadership style is evergreen – allows investors to participate in
market strength when necessary
• Cash can be King - stringent selling discipline allows for
protecting gains and managing through pervasive declines

10. Disclaimer
This commentary is provided as a service to select recipients for information purposes only
and is not a solicitation to buy or offer to sell any securities. The information contained
herein is from sources we believe to be reliable but we cannot guarantee its accurate or
completeness. The comments and opinions expressed are general in nature and reflect the
views of the author. Always consult a qualified investment professional before taking
action on any particular position or strategy to make sure it is right for you. PACE Securities
Corp. is wholly owned by PACE Savings and Credit Union Limited. Member: Canadian
Investor Protection Fund / Investment Industry Regulatory Organisation of Canada