Sponsored by Howard Capital Management
Can you tell us about your vision for founding Howard Capital Management?
We founded Howard Capital Management in 1999. It was after we had seen the devastation of the 1987 bear market, when the market dropped 23% in one day, that we realized risk management should be an important part of our investing strategy. We developed a proprietary mathematical formula named the HCM-BuyLine®, which seeks to sidestep market downturns. We utilized this tool in both 2003 and 2008, two of the most devastating bear markets in Wall Street history, to help our clients minimize loss. There have been 25 bear markets over the history of the stock market, and because of that, risk management has been our modus operandi. It's been the theme that we have built our practice around.
Can you tell us about the HCM-BuyLine®, your proprietary stop-loss strategy?
Going back to the crash of 1987 – I remember it vividly because I was an investor – I saw how devastating it was. After that, I searched the marketplace for some of the very best traders around the world to learn what they did that made them so successful. One common theme that kept coming back was that they used mathematical strategies. None of these great leaders and great investors were just throwing darts or guessing with their strategies. They each had a mathematical approach, and they stuck to it.
I met a great gentleman by the name of Wayne Rainwater. Rainwater taught me about highs and lows and the breadth of the market, and he had a calculation he used to understand it. The calculation was an indicator of whether to be in or out of the market. I worked with him for a long time using his model. Howard Capital Management has quantified the calculations into a computerized program model that we have found to be effective in helping us identify turns of the market. It will not call tops and it will not call bottoms. Instead, what we're trying to do is sidestep 85% of the bad and have our investors in 85% of the good. I’ve learned that taking a mathematical approach to investing helps us keep the emotions out of the equation.
How do you incorporate your proprietary mathematical models into the two ETFs you created, the HCM Defender 100 and the HCM Defender 500?
We’ve noticed something interesting: Computerized trading has been ramping up over the past two, four, and six years, and it now appears to be dominating the markets. Computers are trading all day long against one another. The two ETFs that we built are designed to come into the market quite a bit faster than historical averages. We have done this because of how fast computerized trading has become. If you remember back to the last couple of weeks of December of 2018 – I think it was Christmas Eve or the day before Christmas Eve – the markets were off hundreds of points. You have to ask yourself, who was in their office on Christmas Eve making the market drop like that? Nobody was – it was all computers trading against computers. So, to be competitive today, we felt we had to develop computerized systems.
The Defender Series ETFs track the NASDAQ 100 and the S&P 500 to offer a mathematical approach to indexing. We’ve had the longest bull market in history, going on almost 11 years, and as we’ve learned, nothing lasts forever. It’s like John Bogle at Vanguard said: “We’re going to have another 30, 40, 50% drop in the index, and it’s going to happen two or three times over a person’s life.” Math has also shown us that losing 50% of your money can take a 100% return to build it back up. For that reason, among many, we built a proprietary mechanical and mathematical risk strategy to help defend our clients’ capital.
On the macro side, what is your view on the ETF market, overall volatility, and what’s coming up in the short term?
I don’t think the world needs another small- to mid-cap or large-cap ETF. What I think we need are mathematical strategies like the one we are developing at Howard Capital Management. It involves being in the markets when they are trending up but sidestepping the markets when they are trending down. As far as a macro view goes, I think the markets are clearly going to get more volatile as computerized program trading continues to kick in and dominate the market even more than what we’ve seen already.
Like I said earlier, this is the longest-running bull market in history. Did you know the average tenure of an ETF manager, mutual fund manager, or hedge fund manager is only 8.3 years? That means over 50% of all current managers have never seen a bear market. It’s going to be interesting to see how people who have never seen a bear market’s kind of devastation react to it firsthand. I’ve seen four of them in my lifetime, which is why I so strongly believe you have to replace emotion in your investment strategy and utilize systems like a mathematical approach to overcome or sidestep devastating downturns.
How do you approach risk management?
We built the HCM-BuyLine® as our approach to risk management. It’s computerized. It’s mechanical. It’s not emotional. It’s repeatable. We follow it with strict discipline. This foundational and strategic tool has made it possible for Howard Capital Management to potentially avoid sitting through a bear market and to move in and out of the market more quickly.
Investors should carefully consider the investment objectives, risks, charges and expenses of the HCM Funds. This and other important information about the Funds is contained in the prospectus, which can be obtained at www.howardcmfunds.com or by calling 770-642-4902. The prospectus should be read carefully before investing. HCM Defender 100 ETF and HCM Defender 500 ETF are distributed by Northern Lights Distributors, LLC, member FINRA/ SIPC. Northern Lights Distributors, LLC and Howard Capital Management, Inc. are not affiliated.
Important Risk Information
Exchange Traded Funds involve risk including possible loss of principal. Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns. There is no guarantee that the Fund will achieve its objective. Securities in the Index or in the Fund’s portfolio may underperform in comparison to the general securities markets or other asset classes.
Howard Capital Management, Inc. (“HCM”) is an SEC-registered investment advisor with its principal place of business in the State of Georgia. SEC registration does not constitute an endorsement of HCM by the SEC, nor does it indicate that HCM has arraigned a particular level of skill or ability. HCM only transacts business where it is properly registered or is otherwise exempt from registration. Howard Capital Management, Inc. (Howard CM) offers its investment methodology through multiple programs that may invest in exchange traded funds, variable annuities and mutual funds. There is no certainty that any investment or strategy (including the investments and/or investment strategies recommended by the advisor), will be profitable or successful in achieving investment objectives.
This presentation is limited to the dissemination of general information pertaining to its investment advisory/management services. Any subsequent, direct communication by HCM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of HCM, please contact HCM or refer to the Investment Advisor Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about HCM, including fees and services, send for our disclosure statement as set forth on Form ADV from us using the contact information herein. Please read the disclosure statement carefully before you invest or send money.LASS.HCM.012020
3003-NLD-1/6/2020 FR2020-0107-0084 HCM-010920-ETF2