Divide and Multiply

Around here signs of springtime are popping up everywhere. Having laid dormant through the hot summer and colder winter, bulbs are beginning to force their green blades through the dirt and into sunlight. I’m seeing daffodils, freesias, Dutch iris and amaryllis beginning to bloom all around my yard. They come up thick because I rarely tend to them. Bulbs need to be uprooted, divided, and replanted if their multiplication is to be optimized.

In some respects, this process of division and multiplication corresponds with our method for managing portfolios here at Atlas. Our methodology is rather simple. We use division to determine what investments should be bought. Once planted in your portfolio, we watch for them to multiply. The difficulty lies not in process but volume. The investing universe has a myriad of components; literally thousands of calculations must be done on a daily basis to monitor and update the composition of each account.

If you divide 1 by 1, you get 1. Divide 2 by 1 and you have 2. Divide 3 by 1 and you have 3. Simple enough. Putting these three calculations in order gives this progression: 1, 2, 3. Obviously the number is getting larger. Why? Because the top number in each equation keeps getting bigger while the bottom one stays constant. The difference would be even greater if the bottom number was getting smaller. The difference would continue to grow a bit even if the bottom number got bigger, so long as the top number was growing faster still. We say the top number’s growth is stronger than the bottom one’s in this example. Put another way, the top number is exhibiting relative strength vis-a-vis the bottom one.

Our goal is to compare almost every investment choice available and find those few which we believe can remain relatively stronger than the rest for an extended period of time. This is labor intensive but we have some excellent technology to facilitate the comparisons which we believe points out the brightest blooms in what otherwise would just be a field of weeds. (by J R)