Seraphin Group has built an investment algorithm, so that all investors can benefit from top quality investment management. We know that some people are more or less experienced and are more or less interested in details, so we’ve structured this page accordingly.
Underneath of the video we explain the faults in the financial industry, why experts fail to beat the market, and how our strategy attempts to overcome those failures. If you are an experienced investor and want more technical details then please read the page entitled The Strategy. Finally, it is recommended that everyone interested read through our FAQ.
For new investors, this quick video will explain why making the right investment decisions are of the utmost importance and what Seraphin Group will do to help you make the most of your experience.
Faults in the Financial Industry
We all know the saying, if it’s too good to be true then it probably is. However, the financial industry purposely makes it difficult for people to know what is actually true, and if you don’t know what’s true then how could you know what good is, let alone too good? For example, one would think of guarantees as being good. Annuities frequently offer guaranteed returns, but what does that mean? Most annuities aren’t the best option for investors, and many have such high, hidden fees that it makes the guarantee worthless. This was actually discussed right here in the Wall Street Journal. Unfortunately, this isn’t unique. Plenty of investment vehicles carry hidden fees.
Furthermore, the term “adviser” can apply to anyone selling a financial product – an insurance salesman, a stock broker, or an actual registered investment adviser. What’s the difference between the three? The first two have no legal responsibility to act in your best interest. Brokers call themselves advisers because they don’t want you asking, “What’s the difference between a broker and an investment adviser?” If you knew then you would probably only invest with a registered investment adviser, which Seraphin Group is.
Why Experts and Most Other Investors Fail
We believe in transparency, so let’s just stick to the facts. In mid-2014 CBS news reported that over the last 3 years, 85% of professional fund managers underperformed the market. There are reasons why experts, and most other investors, fail to outperform the market. Here are five of those reasons:
- Short time horizons – Investors these days have short time horizons. Fund managers are under a lot of pressure to beat the market each year, and even quarterly, or they risk losing investors. As a result, they try too hard, and that causes underperformance.
Our algorithms are built on a strong foundation of logic and sound investment principles. As long as you remain invested, you will continue to benefit from a solid strategy time and again, as opposed to a manager chasing performance.
- Impatience – Don’t just blame the experts. Studies show that investors not only underperform the market but do worse than the mutual funds that they left behind.
Patience is a virtue. Legendary hedge fund manager and author, Joel Greenblatt, said that “the secret to value investing is patience. That’s generally in short supply now.” Seraphin Group recommends investors take a longer time horizon of at least five years.
- Fear and exuberance – Since the Roman Empire markets have gone boom and bust. Investor fear is highest as the market is bottoming and hope is highest after the market has risen long enough to put those old fears aside. The result is that the typical investor buys high and sells low. Think you’re smart enough to avoid that mistake? Sir Isaac Newton wasn’t, and he was one of the smartest people to ever live.
Our model searches for low priced stocks in all markets. In fact, we expect our strategy to perform well in falling markets and best in the years immediately following a down market. In other words, we expect to do better on the downside while never missing out on the upside, even capitalizing on it, as the market turns back around.
- Loss aversion – Studies have shown that losses psychologically hurt investors twice as much as gains help. People sell when stocks are dropping, because it simply becomes too painful to continue watching them fall.
Our strategy remains fully invested in all markets. Some investors try to time the market – selling when stocks begin to drop while hoping to buy back at the bottom. In practice, this cannot be accomplished consistently or accurately enough to benefit investors in the long-run. More typically, investors wait too long to both buy and sell. Despite their intentions, they end up buying high and selling low, as described in #3.
- Herd mentality – Like the average investor, experts follow the herd too. Fund managers and professional investment analysts frequently hold the same opinions as their peers. It is easier to admit you were wrong when you can say that everyone else was too, because standing out in the crowd for being wrong is fatal to one’s career.
Thankfully our quantitative strategy cannot be swayed by peer pressure or other market noise. It simply makes the best decisions that it can at all times.
The lesson here is that humans make mistakes. Basic fight or flight and herd responses are ingrained in our DNA, but they don’t work in modern situations. The investment mistakes described above will continue to repeat themselves so long as people are making the decisions. Quantitative investing works, because computers follow cold, calculated logic.
How Our Strategy Benefits From the Mistakes of Others
Seraphin Group charges a 1% asset management fee. It’s true that you can invest in an S&P 500 index fund, which we’ve already said beats almost all of the experts, for as little as 0.09%. That’s certainly a better option than most. However, an index fund is simply an emotionless, diversified stock strategy much like ours.
The difference is that an index fund is naive and our algorithms are smart. We expect our strategy to do better than an S&P 500 index fund in the long-run, because it not only aims to avoid mistakes but to benefit from the mistakes of others. Here’s how we do this:
- Use forensic accounting to eliminate potentially manipulative and fraudulent companies.
- Eliminate any company that may be at risk of bankruptcy.
- Rank the remaining stocks based on their price and quality.
- Buy the top 25 highest ranked stocks.
We believe that our system will pick sound companies that are selling at low prices, because investors’ views on those stock selections are overly pessimistic. In other words, they are making common behavioral mistakes.
It is possible that some of our picks will go lower. In fact, it should be expected. That is why we diversify by buying a basket of 25 stocks. We expect the winners in that basket to generate significantly more return than the losers lose. Furthermore, the purchase prices of all of the stocks are already low so the downside should be more limited relative to the S&P 500.
You may be wondering why we make very little effort to try to eliminate losers before investing in the model’s selections. This brings us to what is called the broken-leg syndrome. The idea behind the broken-leg syndrome is that if you were betting on horses then you obviously wouldn’t choose the horse with the broken leg.
The problem is that human beings are genetically gifted when it comes to pattern recognition. In fact, we are so good at identifying patterns that we even see patterns where none actually exist. This is especially true when it comes to the stock market. As a result, even professional investors see many more “broken-legs” than actually exist. That is why some stocks are priced more pessimistically than they should be. Our algorithms try to exploit this mistake and profit from it.
Backtested Results January 1999 – 2015
These are computer modeled results that reflect what an investor could have expected had this strategy existed in 1999. From this, you see that our investment model would have beaten the S&P 500 for the period Jan. 1999 through Jan. 2015, returning 14.58% annually versus 3.27% for the S&P.
Please note that all results shown above exclude the impact of dividends and include the impact of trading costs and slippage. Also, be mindful that past results do not guarantee future returns. There is always a risk of loss when investing. Therefore, it is important that the savings that you invest in stocks is money that will not be needed in the near future. Seraphin Group recommends staying invested for a minimum of 5 to 7 years to maximize your probability of gain.
For a complete explanation of our investment strategy please see The Strategy page.
How to Get Started
The minimum investment is $17,500. We set this minimum to be sure that our strategy will work for you as intended. If you have at least $17,500 in the bank, an IRA, or an old 401(k) then simply follow the application link below, select the type of account you’d like to open, and fill in your information.
Afterward, you will be asked to verify and fund your account. Your new investment account can be funded by your bank account or by rolling over an IRA or old 401(k) either in part or in whole. Once that’s complete then your job is finished. Your investments will automatically be managed by our quantitative systems. You can check your account online at any time and will begin receiving quarterly statements in the mail. For more frequently asked questions visit our FAQ page.