Outcome Based Investing (OBI)
At OCM our investment philosophy is Outcome Based Investing (OBI) that uses dynamic, cyclically adjusted, portfolio asset management, based on Quantamental Analysis to focus on delivering the “Outcome” (annualised return after fees and charges) for the client, and keeping the volatility with agreed limits.
Our investment decisions are driven by data and judgement. We start with a Quantamental Analysis and using this we then carefully select assets, from the whole investment universe, that we believe will provide a positive contribution to delivering the portfolio outcome, and with the least amount of volatility.
Quantamental Analysis uses a mixture of fundamental and quantitative analysis of data from many sources, both internal and external. Each has its advantages, with fundamental being more forward looking, economical driven and subjective while quantitative is more backward looking (and so can be back tested), and is an objective assessment of market data. We use these tools to analyse the global economic situation and individual cycle development and the extent to which we agree with the market’s valuation.
We make dynamic and cyclical adjustments to our portfolios because we believe that gives the best, risk adjusted returns to clients as the economy moves through each phase of the economic cycle. At the top, when the cycle is at its most extended and the economies are overheating (as evidenced as an example by consumer led price inflation and wage inflation) and central banks intervene to reduce the money supply, then you should be very defensive and focus on the asset that will provide the desired outcome, with the least amount of expected volatility. Therefore, we believe that there are times when all clients should be in cash or in assets that are at that point not correlated to equity market volatility. This is not market timing, such as a trader may try to do, rather this is cyclically adjusting the portfolio to deliver the “Client’s Outcome” and institutionalises the behaviour to sell high and buy low.
Doing this locks in the returns achieved, misses out the losses associated with a recessionary and slowdown phase and benefits from reallocation to risky assets as the economic cycle moves through the recovery and expansion phase. What keeps our clients happy is when we sell when valuations were high and we secure returns on the upside of their expectations as regards to the “Outcome”.