Anthony Isola of The Christian Science Monitor identified two of the major impediments to creating wealth:
Too many choices and inexperience with complex issues are two of the biggest impediments to creating wealth. Limiting choices and automation, on the other hand, are great ways to improve your decision-making.
For the advisor who is providing relative strength-based solutions for their clients, these two impediments to creating wealth become perfectly surmountable. If I, as a financial advisor employing relative strength-based solutions to my clients, were articulating my value proposition to a prospect here are 3 key points I would make:
- Relative strength provides a way to thoroughly and effectively analyze a broad universe of securities. Take the PowerShares DWA Momentum ETF (PDP) as an example. Every quarter, we take 1,000 securities and evaluate each of them based on their PnF relative strength attributes. The top 100 of our ranks make it into the index. This process is no more difficult with 1,000 securities in the investment universe than it would be if there were 500. Relative strength provides an elegant solution to the challenge of “too many choices.”
- Relative strength provides a sell discipline that is as clearly defined as is the buy discipline. Most investors don’t have a problem coming up with ideas of securities to buy, but when it comes to knowing when to sell that is a different story. The end result is that losing positions can act as a drag on a portfolio for extended periods of time. What you don’t own is every bit as important as what you do own. Many of the guided ETF models on the Dorsey Wright research database are managed using a relative strength matrix. The sell discipline for many of these models is if the security falls out of the top half of the ranks. Just one of the ways that relative strength simplifies decisions that to many would seem complex.
- Finally, I would make sure that a prospect understood that if they entrusted their financial wealth with you, that you would systematize the management of their wealth. Advisors have wholesalers in their office every day presenting a good idea. Most of these wholesalers make a compelling argument for the particular investment that they represent. If an advisor were to change their investment process every time they hear a good idea, their client’s portfolios would end up being a mish-mash of who knows what. Clients want to know that you are carefully monitoring their assets and relative strength provides a logical framework for this task.
Framing discussions with prospects around ways that your relative strength-based investment process can lead to them creating and preserving their wealth could very well be the key to winning new business and then keeping that business for decades to come.
The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Dorsey Wright is the index provider for PDP and a suite of other momentum-based ETFs.
