Dear friends,
Welcome to Aleph Investments. I manage stock and bond assets for upper middle-class individuals and small institutions. My minimum is $100,000, which in the separate account world is small. My only income comes from asset management fees, and clients get a clone of my own portfolios with stocks and bonds. My interests are entirely aligned with those of my clients.
If after you read this, you are interested, please look at the documents, and e-mail me to additional data. My clients come first, and I don’t want to disclose for free data that clients and serious inquirers should only have access to.
What you get from Aleph Investments
Stocks
I give you professional management of a stock portfolio with 30-40 different stocks and cash, which is very close to a clone of my own portfolio, in which 70%+ of my liquid net worth is invested.
Bonds
I give you a portfolio of fixed income instruments that has a goal of preserving value in all environments. Some of my family’s money will be invested here, but it is unlikely to be a large part of the investments of my household.
Necessity Focused Investing
Necessity Focused Investing [NFI] is a balanced strategy that is income oriented, and meant to be low-risk. It invests in dividend-paying common stocks with growing dividends in industries that will not become obsolete. Under ordinary circumstances, NFI will diversify across as many industries as possible that fit the above criteria.
The bond portion of the strategy is like the bond strategy listed above, but lower risk. Depending on the height of the equity market, bonds can vary from 50% when the market for stocks is high, and 0% when it is low. Under ordinary conditions, the portfolio will be 75% stocks and 25% bonds.
In General
Aleph Investments has full discretion to buy and sell assets, but not to move assets or cash out of your account. Custody is provided by Interactive Brokers as a safeguard for you. I never have access to client funds, even to receive our fee I must bill you and send notice to the Custodian. You can pay the bill directly or the custodian will remove assets from the account on a daily basis, like a mutual fund. For those with IRAs, paying the bill directly maximizes your tax-deferral.
Transparency – you can review your portfolio at any time at Interactive Brokers. Your cost is limited to the fee you pay me, plus transaction costs at Interactive Brokers, and any other fees specific to your actions regarding your account at Interactive Brokers. (Note that Interactive Brokers has a modest inactivity fee of $10/month; given that their other transaction fees are low, that is a small price to pay.)
Interactive Brokers will provide you with a quarterly statement; I will provide quarterly commentary.
Though I would like my clients to stay with me a long time, your account can be fully or partially liquidated, and transferred to you or another asset manager.
Investment Policy Statement for Aleph Investments’ Stock Strategy
The stock strategy is designed to be about as volatile as an S&P 500 index fund. It is not as diversified as an index fund though, because it invests in only a few of the many industries available, and holds only 30-40 stocks at a time.
In general, the strategy invests in industries where pricing power is improving, or likely to improve, and valuations are cheap relative to growth prospects. Within industries, we select stocks with strong balance sheets. When pricing power is improving rapidly, it can accept companies with somewhat lower balance sheet quality. It also aims for companies that have reasonable earnings quality, reviewing a number of accounting summary measures that tend to correlate with good stock performance.
The strategy is US-centric, but not US stocks only. In the past, non-US stocks have been as high as 40% of the stocks in the portfolio. Ordinarily, that figure is more like 20%. At present, the strategy only purchases assets traded on US and Canadian stock exchanges. The strategy can use ETFs and closed-end funds to access areas of the market outside the US and Canada. When investing outside the US and Canada, investment is limited to countries that respect and protect the rights of outside, passive minority shareholders.
The strategy runs with 0-20% cash, which is adjusted based on relative advantage in the market. Market timing is not a core skill of the strategy. That is why the limit on cash is 20% and not 100%. The cash will ordinarily be invested in a money market fund, but can be invested in bond ETFs or closed-end funds if there is some advantage to be found there.
The strategy does not trade frequently, and tends to generate turnover in the area of 30%. Three or four times per year, new companies are purchased for the strategy, and typically 2-6 companies are added, and a similar number sold. The strategy uses “the economic sell rule” which is that you swap assets you like less for those you like more. Additionally, securities are bought and sold whenever they run 20% away from their target weights, to rebalance the positions.
One more feature of the strategy is that tax losses can be harvested if needed; during those times, an asset that is a close substitute temporarily replaces the asset that was sold. Also, appreciated assets can be donated to facilitate charitable giving.
Investment Policy Statement for Aleph Investments’ Bond Strategy
The bond strategy is designed without regard for volatility, and does not pay attention to any fixed income benchmarks. It does not target a given yield level. It is designed to try to preserve capital in purchasing power terms, avoiding risk when risks are not being fairly rewarded, and taking risk when risks are being more than fairly rewarded.
Since we are working with small accounts, and aggregate assets in the strategy are likely to be small in bond terms, where liquidity typically only gets good when trades get over $100,000 at minimum, and $1 million more normally, we will be using ETFs and closed-end funds primarily to execute this strategy, with bonds being used directly when they can be traded with low all-in costs.
In general, the strategy considers the following risks – duration, convexity, credit, illiquidity, foreign exchange, inflation, and sovereign.
The strategy is US-centric, but may involve foreign bonds and currencies when there are few opportunities to profit in US investments.
The strategy runs very close to fully invested, with cash-like investments at higher levels when there are few opportunities, and low levels when there are significant opportunities.
The strategy may trade frequently, or little, as conditions demand. This is meant to be an opportunistic strategy.
Investment Policy Statement for Aleph Investments’ Necessity Focused Investing [NFI]
NFI is run on a basis that aims for a growing income stream consistent with safety. It is intended for conservative investors that want some growth, and older investors that want growth and income.
Stocks in the NFI strategy are expected to have growing dividends. Additionally, the companies are in industries where the products and services will never get obsolete. The dividend paying stocks will be diversified across REITs, different kinds of utilities, telecommunications, consumer staples, pharmaceuticals, industrials, and energy stocks. There will be an emphasis on safety through sound balance sheets and sustainable payout ratios.There will also be an emphasis on quality, through high gross margins as a ratio of assets, and stability of income. Foreign stocks will be used rarely. This is a low turnover strategy, where stocks get replaced mostly for violating safety and quality requirements.
The NFI strategy is run as a balanced fund. Depending on the height of the equity market, bonds can vary from 50% when the market for stocks is high, and 0% when it is low. Under ordinary conditions, the portfolio will be 75% stocks, 20% bonds, and 5% cash.
The types of bonds used is like the Bond Strategy, but with a higher emphasis on safety. There will be no foreign bonds unless US inflation rises above 5%/year.
Preferred stocks, junk bonds and MLPs are allowed, but are limited in aggregate to less than 20% of the total portfolio.