Protect the Downside and Manage Dynamically

Every person that I’ve spoken with about investing knows that the most important part of making money is... not losing it. Investments that have unlimited or unknown downside are the easiest way to failure.

In every portfolio that I manage, protecting the downside is a key ingredient. Each investor has a different tolerance for downside risk, and my firm focuses on it as a primary metric for management.

In the traditional approach of asset allocation, the efficient frontier is constructed from expected returns. Well, if we earn the expected amount, everyone would always be happy. But there’s another line that goes with that one, but it is never included in the chart: It’s the line that shows you the loss of capital that occurs if the market drives off a cliff. If you can afford the bad potential events, then you know that you have the right amount of risk.

Bennet used to tease me by saying that everyone loves upside volatility; it’s downside volatility that everyone hates. So let’s always keep that in mind when managing money for other people, and make sure we can survive the bad event (just in case a bad market event were ever to occur).

This third pillar of investing also makes sure that we are focusing on the first 2 pillars. As we move along, we want to make the necessary and dynamic changes in the portfolio so that we can be most certain of achieving our clients’ real desires. Always rebalancing back to the original starting point doesn’t make sense if there’s a fixed goal you want to achieve.

It reminds me a quote by John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?” When the markets change, we change our portfolios, because we know that the goals remain the same.

Being Different

This isn’t a new way of investing; it’s a really old way. We went astray in the last 20-30 years, but now we’re back to basics - investing without regard for benchmark construction, but in direct pursuit of the clients’ goals. And it isn’t new for Atlantic Advisors. We have pursued it separately and together as a team for over a decade.


A dear friend of mine, S. Waite Rawls III, once said, “There is a big difference between conventional and conservative.” This method of investing isn’t conventional, but it is a lot more conservative with regard to our clients’ real desires.

This method of investing makes Atlantic Advisors look different. We don’t fit into any box or a style. We don’t have easily categorized products. We don’t even have a good phrase to describe it yet (suggestions welcome). Our returns can look lumpy or odd when compared against a benchmark.

But what we do have is more than a decade of achieving results that were just what our clients needed. Our results haven’t been particularly high, nor have they been terrifyingly low. They have, however, been expected.

And so, in the long shadow of our friend Bennet, we continue to only do customer business. Maybe we won’t manage as much money as a giant index shop like Vanguard. Maybe we won’t be one of the most widely recognized names like PIMCO (PHK) or Fidelity. And we certainly will never earn as much as those managers who charge 2% management fees and get 20% of your upside.

My friend John O’Hara of Franklin Street Partners once said that “size is the enemy of returns”; I couldn’t agree more. Atlantic Advisors doesn’t intend to get too large, but we do intend to satisfy our customers first.

If this modern-day crusade changes the world, then so be it. It’s a living example of the ideals we’ve all built here at Atlantic Advisors, and we shall in this way continue to honor our dear friend Bennet Sedacca.