The rigours of the investment management processes that we conduct on your behalf undergo a fairly strict routine of a 30-day, quarterly and annual cycle of activities.

The “A” part of “AFT Trivest” (which stands for “accounting”) of what we do in the portfolio management cycle has several quantitative processes, some of which are macro and some are micro.

For instance, one of our monthly processes keeps your investment strategy on track with the asset allocation plan that you have. Other processes allow us to monitor your equity investments across industrial sectors and across world geographic zones. A fourth monthly process monitors the dispersion of your maturing bond portfolio over the next decade or so. Lastly, for those who have regular draws from their accounts, we recently added a process wherein we can monitor the provision of unimpaired cash flow quarter-by-quarter over the next twelve months to ensure that money is there as you call for it. This scheduled is update quarterly to ensure its correctness.

We “draw off” your books with a fine-tooth comb once a year—our so-called “annual report”. This is a rigorous process which has us transcribe every single transaction in your accounts onto the detailed annual reports. The summation of that process tells you a) what the entire portfolio earned for the year b) what every single investment you own returned for the year and c) what each of those investments have earned year-by-year historically. When you have multiple accounts with us, we amalgamate all of those individual returns into one overall return for the year.

The annual report gives you a graphical representation of what your annual (“simple”) returns have been with us every year since you came to Trivest. Typically, this graph line will have a fair degree of variability to it, reflecting the realities of investing. Several years ago, we realized that this input to you needed further refinement to smooth out the short term variability, and so we added a cumulative “compound” return which tells you how your accounts have done on average over all of the years you have been with us. Given the gyrations of investing over shorter terms of a business cycle, this statistic becomes more relevant to you, and us, the greater the number of years included. Also, the beauty of long term compound information is that the impact of the long term, obviously, overshadows the impact of any single year.

In the following graph, the more jerky line depicts the simple annual returns over twelve years for a selected balanced portfolio. The smoother line depicts the cumulative compound returns.

You will see that the six-year compound return to 2000 was a very healthy 13.7%. Then came two years where the market took a severe bath. This particular portfolio lost 6.5% in that first year, followed by another 3.5% loss the year after. Not happy news for the investor. But the bigger picture was that the eight year compound return, even after those two bad years, still sustained at 8.4%. You further see that in the ensuing four years, the portfolio had strong double digit returns three times. But the power of the long term doesn’t overplay this recent success, as those four good years only raised the compound number by 1.2% to 9.6%. You can also see this pictorially by the very gradual incline of the compound return on the right side of the graph.

The next graph tracks the average returns of all of our portfolios for the New Millenium.

In the first thirty months of the new century, there were negative portfolio returns in eighteen of those months. This ended in mid-2003 and we have seen four subsequent years with fairly solid and stable returns. In the last five years of the 20th Century, there were a total of five months with negative annual returns, giving a total of 23 negative returns in the last twelve years. In fact, the last five years of the previous century were very kind to investors: offsetting the five bad points in those sixty months, 32 of the points had strong double-digit returns, as exampled by the select 13.7% compound return in the previous graph.

The Sharpe Index will allow us to provide you with a measure of the success of matching risk to reward.

The job of all investors is to balance risk against return, and return against risk. Aspiration to higher returns guarantees a commitment to taking risk, but taking risk doesn’t guarantee higher returns. Our job focuses increasingly foremost on managing the risk side of this unequal equation. This summer, we embarked upon a new quantitative measure to help us monitor that attainment, called the “Sharpe Index”.


We have successfully modeled a prototype of this; however, its complexity will necessitate some time to roll it our across other portfolios. We look forward to sharing this with you.