Effective 2025,  The Triopay Unit Trust has been renamed the Mirador Income and Stability Fund.  This name more accurately conveys the fund’s true objective, purpose and benefits. Likewise, any referral to a Triopay process, system, or program etc. refers to the Mirador Income and Stability process, system, or program etc..

Mirador Real Advice Blog

Active Investing
The Only Real Reasons not to are Time, Effort, and Skill

By Stan Clarke, January 2025

As with many aspects of investment approaches, you can often divide topics into 2 black and white alternatives.  In this case the two are:

  1. Buy and Hold (buy and hope)
  2. Active Management (trading)

Between these two opposite approaches there are different shades of grey.  For example, occasional rebalancing, perhaps on a monthly, quarterly, or annual basis, is active, but close to being buy and hold.  Pure day trading, when you often do not hold security positions overnight, is an extreme active management style that for some is not even considered investing.  At Mirador, we are somewhere in the middle, but probably closer to the active end.

 

Active investing or trading attracts a great deal of investment media attention, and it is mostly negative.  A common quote is that “it’s time in the markets that counts, not market timing”.  But what if you are an income investor?  Income investors are not invested in “the market”, but instead in some very specific subsets of the market.  And speaking of time in the market, if you bought the Nasdaq market in the year 2000, it took you 15 years to break even.  That’s too much time if you are in your pre-retirement or retirement stages of your investment lifecycle.  

 

I also often see articles and videos titled “You Can’t Time the Market”. Firstly, I think people making these statements ought to consider speaking in the first person – admit THEY can’t time the market and then go on to tell what management solution they have chosen and why.  Secondly, the writer’s idea of market timing is often picking precise bottoms and tops.  

 

Sophisticated portfolio management market timing is more about knowing whether the defense or offence is on the market “playing field” (think American football), and then executing portfolio management decisions, allocations and strategies with that in mind to protect the clients’ capital.  That’s how Mirador achieves comfortable stability even though we provide very high income. 

 

The following are five possible reasons for the negativity associated with active management, along with some comments about Miradors active management style.

 

1-Commission costs were ominous and often dissuaded investors and managers from active management

    • Now there are numerous commission-free brokerage houses.  At Mirador, we have obtained very low institutional commission rates that do not inhibit our activity.  Additionally, Mirador Corporation pays these commissions rather than adding them to the purchase costs and deducting them from the trade proceeds of our funds or clients’ accounts.  In other words, we have made our programs and funds commission-free.  Mirador is THE ONLY investment manager that does this, and it is a great benefit to our clients’ portfolio results, it provides better transparency, and it reduces investment decision biases.

 

2-Broker compensation and compliance issues

    • Leading up to the technology bubble burst of 2000, many investment advisors became enormously rich from the commissions from actively trading technology stocks.  When the technology market collapsed, many investors were left with substantial capital losses, while their advisors pocketed their huge pay cheques and felt little if any pain. Subsequent to this, there were costly lawsuits filed against investment companies and advisors regarding firm compliance and oversight and the suitability of the advisors’ advice and trading.  This resulted in the main brokerage and investment firms creating policies and schemes that discouraged active investing by their advisors for liability reasons.  At Mirador, we do not make ourselves more income by trading more.  Our trading is only to improve the likelihood of better income and stability for the portfolio and programs that both we and our clients participate in.

 

3-The Efficient Market Hypothesis

    • In a nutshell, the hypothesis states that all information is known and continuously reflected in security prices, so just own the whole market and do not actively trade.  In the last 25 years we have experienced 3 declines in the markets that exceeded 40%.  Clearly not all the information was known and reflected in the prices prior to these declines!  At Mirador we do considerable quantitative analysis for our portfolio management decisions.  This analysis has tremendous value.  But before we act, we do price and volume analysis commonly known as technical analysis – on the quantitative results.  If the price analysis tells a different story, then we defer to the price analysis in our final actions.  Price action Trumps (sorry for the timely pun) most other analysis.  Our use of Artificial Intelligence via Neural Networks for price analysis has helped us to keep our programs comfortably stabile

 

4-Studies and Arguments Against Market Timing

    • There are a number of studies about how retail investors making active buy and sell decisions underperform the overall indexes. We will address this in more detail in a future blog on behavioral finance where we present how humans are too emotional and biased to be good investors.  That’s why investors are better served using non-emotional, data-based facts of quantitative and technical analysis like we do at Mirador.

 

5-Requires specialized skills, tools and experience and Considerable Time

    • Successful active investing must incorporate both company financial analysis and technical analysis.  Both require access to quality data and expensive tools to optimize and analyze the data.  This is only cost effective for firms like Mirador, not for individuals.  Mirador uses the best-in-class providers of data and analysis.

 

At Mirador we are active investors.  Not day traders, but very active – hundreds of trades a year. We do this because it’s the best way to create better results for people that want high income with comfortable stability.  We are good at active management, and it works well for our clients.  Our institutional economies of scale make sure we are cost efficient.  Our Bloomberg Professional Terminal, Ward Systems software, advanced Excel abilities, and Tableau data visualization software provide the tools for advanced data preparation and analysis that are needed for successful active management.

At Mirador we are not hesitant to put in the extra hours and capital to succeed at large-scale active management. Our clients benefit from it, with thanks.  We enjoy active management and our close day-to-day involvement in the markets provides us first-hand familiarity with all the economic and market developments. This ultimately results in better decisions.

An important aspect to add is the nature of our activity.  Mirador does not place bets.  We do not make giant win or lose decisions.   We start new buys with what I call pilot positions – relatively quite small.  If they work, we pyramid into them – gradually adding to the positions.  If they don’t work soon, we will exit them with small losses.  As a position grows and becomes “over-bought” and hence the yield has declined, we will likely trim it down, not just sell the whole thing.  We will add the proceeds to a position with a better yield that seems to have more room to increase in value.  

Much of our activity is based on optimizing the portfolio according to relative technical and quantitative measures.  Over the decades we have developed brilliant databases that allow us to compare portfolio positions and then adjust the relative positions sizes when improvement potential becomes obvious.  And the improvement potential is always focused on increased income with comfortable stability.

For more information, call me at 403-718-0125, or email me at [email protected].