Our Mission
Our research-based investment philosophy seeks to reduce risk through the proper diversification of assets. We combine the use of exchange-traded funds (ETFs) and no-load mutual funds in specific sectors and styles with the risk reduction tool of allocating assets among stocks, bonds, and cash. We have model portfolios, but each client's portfolio is unique. We are also an active manager of our clients' portfolios. We don't put our clients in securities and forget about them. We are proactive. For example: if the fact that mid-capitalization value stocks are out-performing other styles is a trend, then we will over-weight mid-capitalization values stocks. We do not move in and out of the investment assets on a daily basis. It's more of simply identifying a trend. We don't have to know about a trend before it happens. We can increase an asset weighting as the trend begins to take place and looks like it will stay in place for three months, six months, or a year or more. If the trend takes hold, it will add upside momentum to our clients' portfolios. We do not try to pace the broad-based indexes. We try to reduce the correlation of a client's portfolio to the overall market during the downside of a market cycle, by being well diversified in the right mix of asset classes.
This firm will use the top down approach to manage its clients' assets. This top down approach focuses on the macro of asset allocation inherent to each client's portfolio. This firm's philosophy is that the macro elements of asset allocation outweigh the specific securities selected to facilitate these allocation strategies. This means that the weighting of each class and subclass of stocks, bonds and cash, will bear the most weight in determining the overall performance for each specific client's portfolio, in order to achieve their investment goals.
It is of utmost importance to determine each client's specific investment and financial goals. As such, all clients will receive a comprehensive annual review in order to update the confidential client profile and suitability form, if need be. In addition, depending on the nature of the individual client's investments and specific financial situations, reviews with clients can be performed on a less comprehensive basis, perhaps each month, or even weekly, depending on the urgency of the specific financial situation of each particular client. This can be facilitated in person, by telephone, by email, by fax, or by letter. Changes in the client's specific investment objectives, lifestyle, cash flow, and income taxes are prime triggers for considering portfolio reallocation.
This firm's philosophy is to incorporate ETFs as the prime vehicle as a proxy for stocks, bonds, and other exchanged traded securities. This firm may utilize indexing as one method of diversifying a client's holdings. The indexing vehicles shall be primarily ETFs. The core holdings in stocks may be indexed to "The SP-500", "The Russell 2000", or other appropriate market indexes.
This firm, acting on behalf of its clients, shall not attempt financial market timing, as it understands that no portfolio manager can predict, with any certainty, the ripples of daily, weekly, or monthly price volatility. However, it is this firm's philosophy to facilitate strategies outside of market timing in its conventional form, in an attempt to prevent a momentum decline in its clients' managed assets.
On behalf of its clients' portfolios, this firm will implement management strategies aimed at reducing the inherent volatility (beta) of the financial markets. To facilitate this strategy, this firm will monitor the activities of the Federal Reserve Board (Fed). Specifically, this firm will monitor the Fed's actions in reference to short-term interest rates (Federal Funds Rate, Discount Rate) and their purchase and sale of government securities, in order to increase or reduce the liquidity of the financial markets. This firm's opinion is that the actions of the Fed in any given time frame, and the trend of these actions, can greatly affect the value of assets in the financial markets.
An example of this firm's philosophy is as follows: If the Fed is tightening by raising the Federal Funds or Discount Rate in order to pre-empt inflationary pressures, and this trend is apparent because of an increasing CPI, PPI and other indices which clearly indicate that inflationary pressures are evident in the economy, then this firm may facilitate reducing the maturities of its bond portfolios in order to reduce the effect of lower bond prices on the total returns of its clients' portfolios.
The financial markets' price movement momentum shall be given a high weighting in determining the entry points for a specific client's assets to be allocated in the market at any given time. However, the momentum in the market shall not be the only parameter in determining entry or exit into the financial markets. An example of under-weighting this momentum parameter would be if the financial markets have had a major run on the up-side over a long period of time, perhaps 1 or 2 years, and the momentum is gaining steam. This price momentum will be discounted, as the market may be over-bought and getting ahead of itself. In this scenario, caution will prevail, and posturing by increasing cash or to delay an asset purchase will be facilitated to protect the client's assets. Conversely, if the momentum of the market is on the down-side, and this firm feels that price support has been reached, or will be reached in the near-term, aggressive posturing by purchasing assets may be facilitated, even though there is downward momentum in the market.
In facilitating investment strategies, this firm accepts the view that the global financial markets have the ability to impact our domestic financial markets. Our firm accepts the thesis that the support of our stock and bond markets in the global financial community is predicated not only on the ability and willingness of the U.S. population to support its own equity and bond markets, but also on the ability and willingness of foreigners to expatriate their funds to this country to support our equity and bond markets. The foreign exchange equilibrium with other countries is a key factor of the ability and willingness of foreigners to invest in our financial markets. If our currency had been appreciating in reference to the major foreign countries that have traditionally supported our financial markets, such as England, France, Germany, and Japan, this may be viewed as potential support for our financial markets, all other factors remaining the same.
This firm's goal is to achieve investment returns that meet the expectations specifically requested by the client in the Confidential Client Profile and Suitability Form.
The client accepts and understands that there is no guarantee that the return expectations stated by the client in the Confidential Client and Suitability Form will be attained.
The investment objectives below are overall objectives for the entire account and may be inconsistent with a particular holding and account performance at any given point in time. Investment strategies may include, but are not limited to, buying long or selling short, utilizing sell stops to protect profits, writing options to increase income, or buying options to hedge portfolio risk may be implemented to meet a particular investment objective of the Client. All investment objectives, whether considered low risk or high risk, may result in a loss of principal if assets are sold during a specific market cycle. Client further understands that even if the investment assets are limited to U.S. Government Bonds or FDIC insured CDs that have no default risk, it is possible for the Client to lose principal if the Government Bonds or CDs are sold before maturity. The term Òfixed incomeÓ refers to short term money funds or other cash equivalents, individual bonds, exchange traded funds (ETFs), (long or short) bond funds, bond mutual funds, unit investment trusts or other bond derived investments. The term ÒequityÓ refers to individual stocks, ETFs (equity or commodity based), stock mutual funds and other equity derived securities. ETFs will be used as the primary investment vehicle when suitable to increase the diversity of the portfolio and enable more specific sector targeting as compared to traditional mutual funds.
The following is a description of the 4 basic categories of specific investment objectives:
- Specialty Bond: (Minimum account $500,000) Bond laddering will be implemented. Selection of bond types (government, municipal, corporate), and maturities. May harvest capital gains, but generally hold bonds to maturity and then reinvest proceeds.
- Growth with Capital Preservation: This is the most conservative growth investment objective. The account will be managed to pursue growth but try to limit portfolio loss. Any weighting combination of fixed income or equity may be implemented. To limit portfolio loss target sell prices will be set for any particular security held in the portfolio. Hedging techniques may be implemented. The hedging techniques that may be implemented but not limited to are, buying puts on underlying securities and or implementing sell stops on underlying securities. A range of 5%-10% loss of any particular ETF will be acceptable (but can exceed this limit, depending on market conditions). Utilizing this strategy client accepts and agrees that this strategy may produce lower returns than objective #2 as in mitigating short-term risk, objective #1 may also reduce overall portfolio returns.
- Long-Term Growth: This account will be managed with less short-term risk reduction strategies than objective #1 and as such, target sell prices will be set lower than for objective #1. Hedging techniques may be implemented. The hedging techniques that may be implemented but not limited to are, buying puts on underlying securities and or implementing sell stops on underlying securities. Any weighting combination of fixed income or equity may be implemented. Client accepts and understands that this investment objective entails potential for more short as well as long-term loss than objective #1. However, the potential to increase the returns on this account may be enhanced. A range of 8.5%-15% loss of any particular ETF or security will be acceptable (but can exceed this limit depending on market conditions).
- Aggressive Growth Trading Strategy: The goal for this investment objective is a targeted return of 25% or more per year. This investment objective involves the buying and selling of stocks, ETFs, bonds, options, other exchange-traded securities, (hereafter collectively referred to as securities) and combinations of securities. The Client understands and accepts that this investment objective has no track record and that its success or failure depends directly upon the decisions of Sheldon M. Bell, the President of Bell Financial Management Corporation, a Registered Investment Adviser. Mr. Bell has been a licensed stockbroker and options principal since 1984. He has also been the founder and president of two broker dealers (stock brokerages) in the past twenty years. The primary goal of this investment objective is to benefit from correctly predicting the movement of a security or a securities market. The securities market moves either up (a bullish market), down (a bearish market) or unchanged (a neutral market). This investment strategy may exploit potential portfolio gains by investing contrary to an illogical trend in the securities market. For example, assume that a security is rising in price, even though its business model may be flawed or the company may be experiencing a rapid deceleration in its earnings. Our strategy might be to invest in the decline of the security. Bell Financial Management Corporation will generate a personalized investment strategy for the Client. This personalized investment strategy is dependent on the Client's risk tolerance, assets available for investing, and time horizon for investing. These strategies may include buying calls and puts on underlying securities and selling calls and puts on appropriate underlying securities. If calls and/or puts are sold there will always be an offsetting purchase to hedge the sale of the call or put.
The Client also accepts and understands that the income tax ramifications are not considered in trading these securities and options. Under current income tax laws, most or all of the Client's gains may be taxed as ordinary income or as short-term capital gains at a higher tax bracket than long-term capital gains.
Portfolio Excessive Loss Mitigation Techniques
To mitigate potential for excessive loss no uncovered shorting or writing uncovered options shall be implemented. Usually, no security position will exceed 10% of the portfolio value.
The Client understands that this investment strategy is considered high risk. As such, the Client acknowledges that they can afford to lose a substantial amount of their invested dollars at any time. In addition, the Client understands that there are no performance guarantees that this strategy will be successful.
The Client also understands and accepts that, when utilizing options as an investment vehicle, the entire loss of their investment is possible. This occurs because options have expiration dates upon which options can expire with little, if any, value.
All security trades will have a predetermined maximum loss computed at the time the trade is facilitated. All hedged positions will be unwound by first selling the hedged security and subsequently the hedge itself.
The specific mix of the investments selected on a client's behalf can vary over time, depending on their particular financial situation and due to short-term market fluctuations, special market conditions, and other unique circumstances that may apply specifically to the client. It will be impossible to define every parameter that may affect the client and the subsequent strategy to be implemented at that time in order to achieve their investment goals.
The asset mixes for the proceeding four categories may be changed at any time in order to accommodate the climate of the financial markets at any given time.
Any of these four investment categories may utilize portfolio hedging strategies, including, but not limited to: buying puts on correlated securities, implementing sell stops, and writing covered calls. The exact formula of a hedging strategy for a particular client will be discussed with the client before it is enacted.
This firm's goal is to provide reduced volatility (beta) and the most predictable returns in the ever-changing financial markets. Correlating with or out-performing a specific market index is not this firm's goal in managing its clients' assets.
Summary
In order to facilitate this firm's investment philosophy, the firm will incorporate the macro view of economics. This macro view will include: interest rate changes, inflationary expectations, momentum of the market, price and volume history, the Fed's monetary policy, the state of the economy and the business cycle, the prices of commodities, the domestic & foreign political agenda, and the trends in foreign exchange markets, along with other factors that may affect the performance of the financial markets. In a cycle when interest rates are trending upward, bond maturities may be shortened, equity allocations may be reduced, and cash positions may be increased. Conversely, if interest rates are trending downward and/or inflationary expectations are benign then average maturities of bonds may be increased and equity holdings may be more heavily weighted if there are no other extraneous factors to mitigate the potential for these financial assets to increase in value.
This firm will often use conventional wisdom in making its investment allocation decisions. However, there may be times where this firm's philosophy will oppose conventional wisdom in order to facilitate strategies to protect its clients' assets.
It is impossible for any investment policy statement to encompass all the variables that make up the final investment allocation decision for this firm. Ultimately, it is Sheldon M. Bell, the firm's president and principle adviser, who's intuition will be the final factor in determining the selection, timing, and weighting of each client's portfolio investments. It would be impossible to quantify or qualify this intuitive process, as it encompasses over 25 years experience of following the financial markets, and more than 20 years of being an investment professional.
