Risk Mitigation, Built In

Sensible asset allocation and diversification techniques help to reduce investment risk.

The dual approach

KL Winterbourne Associates appreciates that, for many, the prospect of investing in the high technology market seems exciting when compared to the staid perception of long-term investment in dependable but pedestrian blue-chip equities, bond funds and ETFs typically advocated by most investment managers but, in actual fact, the two approaches complement each other very well.

Be under no illusions, investing in the stocks of high innovation companies can harbor increased risk of loss compared with investing in the shares of companies in more established sectors like industrials, semi-conductors and financials.

Why is this?

Well, think about it; stock in blue chip corporates like Apple Inc., Caterpillar, Royal Dutch Shell, Ford and IBM etc are “known quantities”. They’ve traded for decades, their stock prices are less volatile and their business models are very straightforward and tried & tested. This means there is far less likelihood of an unpleasant surprise like a huge debt or unfunded liability emerging that could dramatically affect shareholder value.

Seeking alpha

In stark contrast, many high technology companies can be something of an “unknown quantity” – especially if they’ve only recently gone public. Not because they’re badly run or their governance is questionable but often, they have less history behind them and, because the pace of development in the technology space can be particularly rapid, their perceived advantage in the marketplace can potentially be eroded by their rivals’ innovations.

Nevertheless, the potential for high return on investment (ROI) IS there and KL Winterbourne Associates’ job is to identify them for our clients. We take the guesswork out of stock-picking by selecting companies with products or services that we think can sustain their competitive advantage over the long-term.

By avoiding companies whose products or services are “gimmicky” or that are likely to face tough competition from established or larger players within their niche (if any), we aim to strike the optimal balance between impressive capital gains and sustainability. This approach to risk acts as an anchor to the fundamental principles of investing while providing enhanced upside potential for portfolio performance.