In all cases, investment decisions are based upon client preferences. Generally speaking, long-term capital appreciation is best attained through a selection of fundamentally strong companies that are not already trading at excessive valuations. We do not recommend ETFs because investors who “invest in the market” (e.g., an ETF index fund) take on exposure to “bad” companies and “good” companies. An index portfolio’s upside is limited by the poor companies, there is less protection on the downside through holding over-valued stocks, and, in any event, such a portfolio can never outperform the market.


While all capital market decisions involve a degree of risk, the most successful investors have a clear vision of each company’s financial health, earnings outlook, and valuation, all providing greater conviction to hold the company’s stock.


From our Decision Support Model, we build company Watch Lists composed of the highest rated companies. These Watch Lists are separated into three thematic groups: Growth, Value and Yield.




Our Watch Lists are updated daily to capture improving/deteriorating data, including company fundamentals as filed by the companies and reported by analysts. Such continuous research is facilitated by Bill Cara’s proprietary Greenfield TraderCadence (“Cadence”) system, which supports all Cara Portfolio Management professional services as well as publishing services.


Cadence integrates fundamental and technical data and synthesizes the key data necessary for making informed investment and trading decisions. As of November 5, 2019, this humungous database exceeds 760 million datapoints. But; the system is scalable to accommodate the growing number of datapoints. Our data source is based in France and our servers are in Germany and our multi-year use of these service providers has proven to be extremely satisfactory.


Cadence market coverage is more than 120,000 ticker symbols from 60+ stock exchanges (including USOTC), all indexed by 8-digit GICS codes. In addition, the data includes the trading data for about 4,500 US equity options, 6,000 ETFs, 20,000 US corporate bonds and 20,000 US mutual funds. In addition to numerical trading data, we capture corporate fundamental data, including historical earnings, for most active companies. Soon to come will be the securities regulator filings (EDGAR, SEDAR), including MD&A’s and news releases.


Price and Technicals


Cadence algorithms give strong buy/buy/hold/sell/strong sell trading alerts and signals for each ticker symbol and for groups of symbols. Peer groups are ticker symbol related or custom portfolio related. All system-generated reports can be in PDF or text format as well as be customized for any subscriber or any purpose.


To be a successful portfolio manager requires being a good risk manager. We apply Risk Scores for all the stocks that we track. Next, all our positions are included in a Daily Trading Model that points to breakdowns in stock price that merits investor attention. In addition, professional investors closely track the changing prospects of future company profitability and cash flow.


By tracking intra-day stock price data and balancing higher vs. lower risk candidates, we are better able to control the amount of total risk in our portfolios as well as improve entry/exit points.


To Diversify or Not?


We try to maintain a core group of 10 to 20 stocks for most portfolios, with an approximate minimum 1% to maximum 10% weight per holding. This range gives significant exposure to selected company stocks as well as enable us to maintain a minimum holding when times are tough.


We diversify. In our sector-balanced portfolios, we will limit maximum allocation to any one sector of 35%. In our focused Natural Resources portfolio, we try for a balance between the sub-industries of explorers and producers, oilfield drillers and equipment service providers, refiners and pipelines for both crude oil and natural gas, plus other energy sources such as coal and uranium, and basic materials like forestry and wood products, and metals like copper as well as precious metals.


Risk Limits and Stops


We apply both soft stops (from deterioration in company fundamentals) and hard stops (at price support levels on the charts).


As earnings are released before or after market hours, stock prices tend to gap higher or lower as earnings beat or miss forecasts. Accordingly, we track earnings release dates for all our companies, and we consider lightening up on stocks in the days before the company reports.


The Nuts & Bolts of Our Portfolio Construction and Trading


With the assistance of Cadence, we apply numerous simple trading rules to help with risk management and improve our entry prices. First, we rarely start with a full-weight position. Trading at Interactive Brokers, like several other electronic brokers today, costs essentially nothing, so multiple trades to build a position or reduce it to manage risk won’t impact cost price. In general, we start with a partial weight per company and add to the position when best indicated by our decision support model. We gradually close positions as either price action deteriorates or the company drops in our fundamental rankings.


With intense volatility now obviously impacting markets with severe drawdowns that occur in fast markets, which discredits our trading discipline of ‘sell into strength and then wait for weeks and months to buy into weakness’, we decided to make a drastic change to our trading rules that will see more trading in our portfolios. However, our investment methodology remains otherwise unchanged.