Many methods commonly accepted by economists, academicians and Wall Street brokerage firms require assumptions to be made regarding critical inputs. Future returns and future correlation rates of asset classes are required to make these investment models function.
Because no one knows the future, we believe the very nature of these assumptions render these investment disciplines ineffective. In short, these methods are valid only in theory. Our success comes, in part, from the fact that we are unwilling to accept “conventional wisdom” as absolute truth. This unwillingness to follow Wall Street is what led us to start the firm and to develop our proprietary portfolio management systems.
Woodridge Capital manages separate accounts using a scientifically tested quantitative strategy that invests in publicly traded equities listed on the NYSE, AMEX and NASDAQ. Woodridge Capital implemented this non-discretionary portfolio management system in March of 2010. The proprietary trend following methodology combines market sentiment with fundamental company analysis. The system favors stocks with strong sales growth, high return on equity and strong price momentum. Our methodology defines up trends and down trends mathematically and is invested in stocks when an up trend is in place and exits stocks when the trend ends. The system will also short the market when the market is in a down trend, as we define a down trend. There is a clear long bias in the portfolio management system due to the fact that markets trend upward more often than downward.
Portfolio management system development is no easy task. A common issue often overlooked by would be developers is “form fitting.” Because system development naturally involves the use of past data during the development phase, developers must go to great lengths to avoid creating a system that would have worked well in the past but is likely to fail in the future. While it is impossible to eliminate all form fitting risk, we worked diligently in all phases of the system development process to reduce its effect. A credible measure of our success in this regard is the fact that our live results have very closely resembled our back tested results.