“Follow the Money” is the first principle of FSA’s investment approach. In this week’s episode of #TechnicalTuesdays, Ron Rough, FSA’s Director of Portfolio Management, explains what “Follow the Money” means and how FSA uses the concept to manage our clients’ portfolios.
Follow the money transcription
Hello! This is Ron Rough, Director of Portfolio Management with Financial Services Advisory with a Technical Tuesday video.
FSA manages money according to two broad concepts:
- Follow the Money
- Have an Exit Strategy
Today we’re going to talk about that first concept, Follow the Money.
What exactly does that phrase mean, Follow the Money? As an active manager, FSA does not believe in holding all assets and sectors of the market at all times. As market conditions change, so do our investments.
We identify those preferred areas by following the money. That is, we’re looking for areas of investor interest.
If we look at the chart here, you see that over time investor interest ebbs and flows in any asset class. What we’re interested in doing is owning assets and securities during rising price trends marked here in green and avoiding assets that are having falling trends as you see marked in red.
In the 90s, assets were dominated by technology and internet stocks represented by this red line here. Then in the aftermath of the financial crisis, investors poured money into fixed income represented by the blue and pink lines here.
And then most recently, over the last five or six years, all the money has been going towards large cap US stocks, basically the S&P 500 and the Dow Jones Industrial Average, as you can see here with this green line.
follow the money visual
Maybe this visual will give you a sense of what we’re trying to do. Think about a horse race. As the horses start to run around the track, we’re interested in putting our money with the horses that are at the front of the pack, those that have increased investor demand, and avoid the assets that have started to fall back, the horses that are in the back of the pack.
So at a high level, that’s the rationale behind the purchases that we make – to constantly look for leading areas of the market.
If you have any questions about the content of this video, please call or email us. Until our next update, this has been Technical Tuesday and this is Ron Rough.
Thank you for watching!