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3 Considerations for Tactical Investing: Delta Investment Management

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“Participate in bullish market trends and avoid the major losing market trends,” says Nick Atkeson. “If you can execute on this simple idea, you should be a very successful investor.”

Well, yeah. That’s the whole objective of investing. It’s the “how” that matters, and Atkeson doesn’t let that slide. The founding partner of San Francisco-based Delta Investment Management wrote the book on it (literally) with Delta co-founder Andrew Houghton, titled “Win by Not Losing: A Disciplined Approach to Building and Protecting Your Wealth in the Stock Market By Managing Your Risk.”

So how is it done?

Tactical investing, something Delta knows quite a bit about, as it’s the firm’s specialty.

“There are variations of the definition of tactical investing,” Atkeson explains. “For our purposes, it’s an active management portfolio strategy that rebalances a percentage of assets held in different categories in order to take advantage of market pricing discrepancies so we can avoid losses.”  

Atkeson references Warren Buffett’s first rule of investing, “don’t lose money,” before adding Buffett’s second rule of investing, “don’t forget rule No. 1.”

It’s the firm’s overarching message, and in the hypervolatile market environment since 2008, it’s one that’s resonating with clients and readers alike.

“If we compare tactical investing to walking across a city street, our objective is to reach the other side safely,” he adds. “The tactic we employ to accomplish this objective is to cross when there are no cars. We start the process by focusing on the possible downside of being struck and injured or killed rather than on the upside of getting to the other side of the street.”

According to Atkeson, advisors and clients should look to tactical investing if they believe:

  1. There is a reasonable probability the stock market will experience a period of severe depreciation during the client’s investment horizon.
  2. There is a reasonable probability the stock market will not experience sufficient appreciation during the client’s investment horizon to meet your investment objectives.
  3. It makes sense to have a well-defined plan in place for addressing items one and two before investing in equities.

“Our objective is to increase wealth by owning stocks,” he says. “However, we have no interest in owning stocks if there is a reasonable chance that we will lose a significant portion of that wealth.”

Translation: For those with low risk tolerances and an eye for preservation, tactical investing might be just the right thing for them.

“Before entering the market, we ‘look both ways’ to ensure that risk levels are attractive,” Atkeson concludes. “If risk is unacceptably high, we stay out of the market. When risk is low, we proceed to invest. Tactical investing isn’t new, though the way we talk about it is.”