What separates Tramco Capital from our competitors is our risk management philosophy. We manage portfolio risk based on the Kelly criterion. Essentially, the Kelly criterion is a scientific betting system engineered to multiply profits faster than any other approach involving uncertainty.
We believe it is superior to any other risk management system devised by man. It has many applications and can be used in numerous betting scenarios including but not limited to blackjack, racetrack wagering, arbitrage, oil and gas exploration, and more.
Many papers have been written attempting to apply the system to the stock market to no avail. The principals at Tramco Capital have discovered how to apply this system to the financial markets using asset allocation. This mathematical breakthrough has been tested through multiple scenarios and found to be superior to Modern Portfolio Theory (MPT) as promulgated by Harry Markowitz.
The above diagram shows the risk/reward curve according to MPT. But does this really tell you anything significant? For all its complicated math, one can make the argument that all MPT really says is that if you want to make more money then simply take on more risk. What a revelation!
Alternatively, the Kelly diagram, as shown above, proves there is a point where maximum profitability occurs and any risk taken beyond this threshold is foolish since you are lowering return with the increased risk.
Most investment company products are differentiated by asset class. You can buy stock, bond, and money market funds, and combine them to fit your portfolio needs. The problem with this approach is most advisors allocate assets for their clients based largely on intuition. We have taken the headache out of this decision and offer our fund products based on risk profile. In other words, our fund products are balanced combinations of assets engineered to fit two basic risk categories. The allocation decision is determined mathematically using the Kelly algorithm, which will multiply asset growth in the most optimum way. We combine the different asset classes including but not limited to equities, government and corporate debt, precious metals, cash, REITs, mortgage-backed securities and more.
The safety of the Kelly approach is one of its most amazing aspects. Its exceptionally attractive returns are achieved using the same investment grade securities a five star insurance company would. With Kelly you can really have your cake and eat it too.