Investment Advisors

Investment Strategy

Serco Investments utilizes a well-defined, logical investment strategy. Within the parameters of this strategy, our management style is disciplined and controlled. Our objective is to take advantage of long-term trends in both the market itself and the individual issues. However, preservation of capital is of foremost importance. The attainment of our stated goal to obtain the highest real return commensurate with safety of principal is realized through a three-step decision making process.

We begin with a macro view of world trends: social, political, economic and technological events which will impact future investment markets. Changes in lifestyle, demographics, and technology help us identify industries or investments that are creating opportunities. We check governmental actions and economic trends affecting the strength of national markets. Then we evaluate:

  1. The trend of the market, whether upward or downward.
  2. The industry groups that are performing best in the market environment.
  3. The particular stocks that are performing well within the determined industry groups.

Stock Exchange

Trend Identification

In general, market success is achieved by trading with the primary trends. In bull markets, Serco Investments is heavily invested in stocks; in bear markets we reduce equity exposure and hedge portfolios. We exert considerable research time and effort to identifying trends. We utilize sophisticated, proprietary computer models to a considerable extent to aid our research. These models are based on stock market data of the past 20 years. The models allow the mathematical quantification of uptrends in excess of eight percent on the S&P 500. Our models have proved accurate over 70% of the time.

We are "long" in the market when our models indicate that the trend is up. And we stay with winners! If a stock achieves our goal we do not necessarily sell it. Staying with winners for long periods keeps the right momentum in any investment portfolio. Much of our success can be attributed to our ability to enter the market close to the low points. The initial entry in the market is done with 30 to 40 percent of the funds available. When the market moves up as we expect, the balance of funds are then invested.

However, no investment strategy is infallible. To safeguard against the event of an incorrect decision, the firm adheres strictly to predetermined "stop loss" points. Likewise, should our computer models indicate a sell signal, we move mental stops on the stocks owned. If or when that stop is reached, the stock is sold at market price. (Significantly, these stops are mental stops - not placed with the specialist on the floor of the exchange. The size of our positions could distort our own execution.)

Group Selection

Group selection is a vital process, for the best performing groups offer superior investment opportunities. Serco Investments selects industry groups by a technical method known as relative strength analysis. We quantitatively evaluate the performance of various industry groups in relation to the S&P 500. Such selection has greatly contributed to enhanced portfolio value for our clients.

Stock Selection

Our selection of specific issues within determined groups is made through both technical and fundamental analysis. Technical analysis is partly a scientific endeavor and partly an art. The fundamentals, however, are straightforward and simple. We ask:

  1. What is the quality of the company's business? This is answered by readily available financial data. We look for a company that is expanding its share of a growing market.
  2. What is the growth outlook? We look for a company that is expanding its share of a growing market.
  3. What is the earnings momentum? For example, the rate of gain in increase of earnings is a factor we consider.
  4. What is the "silent incentive"? Is there some positive characteristic peculiar to this company? Examples are: insider stock purchase; sale of a losing division; acquisition of a new division or introduction of a new product.

After the selection process is complete, our investment strategy dictates that we not invest more than 10% to 15% of the assets in one particular stock.

Serco Investments has access to computer technology that monitors each stock on a minute-by-minute basis. This fact, along with the established criteria for selecting stocks, enables us to determine the individual issues that are the best possible investments for our clients.

Sell Strategy

We will sell a stock for any of the five reasons:

  1. If our specific sell point for a stock is violated.
  2. If a stock has achieved its capital appreciation objective, and further growth is not expected to meet our appreciation standards.
  3. If the stock has outperformed short-term expectations and appears to be well ahead of itself. In this case we may move to another stock in the same industry or in another industry that hasn't played itself out.
  4. If our assumptions turn out to be incorrect or earnings are not as expected.
  5. If economic conditions cause the equity market or the industry to decline. In this situation, we would most likely withdraw entirely from that industry or from the market. Our macro view of world trends helps us to anticipate downward pressures in advance and to withdraw from the market before a major downswing occurs.