Investment Management / Quantitative Process

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Ifrah Financial manages money using a quantitatively driven approach. The quantitative process is a disciplined approach to selecting securities. It involves choosing individual securities using indicators and formulas that have been historically tested and have a tendency to work favorably over time.

A combination of desirable business metrics, along with appropriate valuation criteria, is used to find stocks that we believe will provide superior risk/return potential. By using multiple strategies within a portfolio, we attempt to balance the overall risk/return profile of the portfolio for different time frames ranging from the shorter to longer term. With focus on the long term, the combined components within a portfolio are designed to create a well-diversified portfolio.

We view the investment process as a balancing act. Screening for the best possible criteria and finding quality companies is relatively easy. One of the keys to good risk adjusted performance involves more than just investing in great companies. Critical to the process is the price one pays for a given stock. Doing so while avoiding stocks with cheap valuations that turn into value traps is important. Value traps are stocks that are relatively cheap but do not increase in value for extended periods of time. This can occur for many reasons, some which are not necessarily obvious to everyone. We therefore not only give consideration valuation, but use momentum driven factors as well to reduce the risks of such exposure

A great company doesn’t necessarily make for a great stock. A great stock in our view is one that generates a superior return. That is why discipline plays a key role. As an example, when the stock market is doing well, it is very tempting for most investors to chase the stocks that everyone else wants to own, those that seem to go up relentlessly regardless of their underlying worth. The pursuit of a disciplined approach helps insure that we stay objectively grounded with the fundamental principles of valuation and attempt to apply these principles more consistently over time.

The use of Passive and Active strategies reconciles two schools of thought on investing. The pundits of indexing have favored the most passive approaches to mimic index returns and limit expenses to achieve their investment objectives. Although we believe that active management adds significant value from both a return and risk standpoint, we feel that a passive component in one’s portfolio makes sense to establish low-cost diversification and serve as a core element. We then actively manage the remainder of the assets in the portfolio in an attempt to enhance returns and reduce risks compared to a purely passive strategy.

We use quantitative approaches, which allow the application of discipline and reducing the emotional or biased judgment at the most critical time during the implementation of the strategies. The most critical times for investors are when there is the temptation to succumb to the basic emotions of fear, greed and the herd mentality.

The quantitative approach allows us to stay grounded around principles that have served us well in the past and stay away from the temptation to react without a plan. We also invest using multiple points of view by applying multiple disciplines of investing to not just diversify types of securities used, but actually diversify the methodologies and approaches used. This is unique in that we do not focus on just one view of how to succeed in the markets. We recognize that sometimes certain approaches work better than others so we are open to using multiple approaches in a way that a traditional manager would typically not consider.

We review the overall portfolio to avoid undesirable concentrations in too few securities, industries or sectors. Picking great stocks is only one part of the process of proper portfolio construction. Another important step is to assemble a group of stocks in such a way as to achieve a desired result from a risk/return standpoint. There are differing degrees of correlations among the various stocks within a portfolio and assembling these in a way that can reduce overall portfolio volatility is desirable.

A portfolio that might appear diversified on the surface, because it contains many securities, could actually be focused on stocks that tend to move together. With higher correlations among the securities within a portfolio, one would be assuming a higher level of risk than necessary. Simple diversification by owning a number of stocks is not enough. The dynamics of the portfolio have to be evaluated on an ongoing basis. ‘What if’ and ‘stress test’ scenarios, as well as ongoing analysis of the portfolio, are needed to better understand the overall behavior of the portfolio and to deliver more consistent results over time.

Positions in the portfolio are continuously reviewed to ensure they are serving their purpose and to see how they compare to other companies that have recently passed the screening process. Despite a bias towards holding positions for the long term, a position might be sold simply to make room for a more attractive opportunity.

Although sound investment management overrides tax considerations, we attempt to take advantage of opportunities to match gains and losses within the same tax year to provide the portfolio with some level of tax efficiency when applicable

Please Remember: Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Ifrah) will be profitable. Please remember that it remains your responsibility to advise Ifrah, in writing, if there are any changes in the information provided above, including any change in your personal/financial situation, or if you would like to impose, add, or to modify any reasonable restrictions to Ifrah’s investment advisory services.