Equity Logic

Objective of the Discipline

To integrate the broad observations of management to obtain better than Market returns by selling at relative market peaks and buying back at relative market troughs. This Strategy is not intended to be actively traded, but instead focuses on long-only market-based investments that pay high dividends. With the reality of the existing environment, this strategy is designed to buy when everyone is panicking, and sell when investors are too happy, and repeat the process again every year. There are only a few opportunities to do this every year, so trading is expected to be light, and cash is an integral component to this objective and therefore considered an investment as well.

Description of the Strategy

Almost every year the Market goes through a capitulatory phase. PCG attempts to leverage that reality with the understanding that better than market returns are achievable if the strategy is able to buy during the capitulatory phase every year, with the intention of selling when investors become happy, or complacent.

Therefore, this strategy is a proactive strategy, because there is an exit strategy for every trade, it is not an actively traded strategy, but it is not a traditional investment portfolio either. Instead, it is proactive conservative growth strategies that will buy what some people believe are core large-cap equity positions that pay high dividends, ones that could be held forever if that was the intention, but our intention is to hold for only a short while.

Often, investments in such instruments create Golden Handcuffs where investors fail to adhere to exit disciplines, but because this strategy will have an exit strategy based on Market levels, those Golden Handcuffs will be broken and this strategy will move to cash when everything looks good. Of course, the only way the strategy could possibly buy when everything looks bad is to have first sold, so with the intent of achieving better than Market returns, PCG is proactive, but not active, conservative, but not traditional, and growth oriented with the goal of beating the Market measurably over time.

Rules Associated With the Strategy

• Buy when everyone is panicking.
• Sell when everyone is complacent.
• Buy again when everyone panics again.
• Repeat the process over time.

Risk Controls and Assessments

The risk controls associated with PCG are not traditional, but they can be effective. PCG will only buy when the Market appears to be in capitulatory environments, and that means it will only buy on meaningful weakness. It is also restricted to buying only large- cap high-dividend paying blue chip stocks that can be held for long term periods of time, and it purposefully avoids small cap and no-dividend paying stocks. The strategy is therefore expected to invest in companies defined as relatively conservative during periods of Market volatility, with the intention of entering the stocks at bargain prices only after the stocks have fallen to a level deemed attractive by management, therefore providing a measure of risk control that aims to avoid some if not all material declines that may take place prior to the capitulatory environment.