It is not enough to say that a portfolio has limited drawdown or risk of loss of capital. This is an important metric, but there is an attribute of a good investment strategy that rarely is explored, explained, or even mentioned. That attribute is “Consistency“. Too often when this topic is discussed, it is about consistency of returns. At Stone Barn, we focus first on consistency of risk. When we design portfolios around risk, we are able to more closely approximate that unattainable goal of a straight line. By targeting a certain risk level and building a portfolio that hovers around that level during any slice of history we select, we know that we are going to be able to sleep at night and are more likely to achieve our financial goals. Why? Because, the returns are then a function of how well we control portfolio risk.
Persistent Consistency is when a portfolio not only exhibits a consistent risk level, but when it does so in different time frames and different market conditions. In the video above, Don and Paul take a look at one of the portfolios we each trade for ourselves, the Stone Barn Moderate – NDX. Looking at successive 3 year slices of historical testing, they point out how they look for this feature in the portfolios they build and why it is important to control first for risk.