The key to making a successful investment decision is to base that decision on knowable factual information, and avoiding investment decisions that require guesses and conjecture about future events. Because the subjectivity involved in forecasting is inevitably affected by systematic behavioral biases on the part of investors, we believe that the best system of stock analysis determines the market’s implicit forecasts and then benchmarks them against management’s historical ability to deliver.
Our system, the Required Business Performance® (RBP® ) Methodology, seeks to determine the revenue growth required to support each stock at its current price, then calculates a probability, called RBP® Probability, based on historical revenue growth that this required revenue growth will be delivered. Similarly, we believe our Behavioral Risk Indicator shows us the likelihood that behavioral biases have pushed the stock price to a level that makes it difficult for management to deliver the Required Business Performance to support the stock price. We believe this enables us to avoid the subjectivity and bias when trying to forecast the unknowable future.
The methodology is not based on the traditional notion of value, what we think a company is “really” worth, or whether or not a particular stock is a good long-term investment. Our methodology is designed around the answer to a simple question "Can management deliver the required business performance to support the price of its stock?" If management is likely to deliver, we feel the company is worth the investment. Our methodology provides no assurance that it can identify companies that will either deliver the required revenue growth or outperform the performance of other indexes, but we feel the system of analysis puts us in a position of advantage by minimizing the behavioral risk often associated with traditional stock analysis.
Picking Winners is a Losing Game
Our investment philosophy is disciplined and unemotional. We seek to capitalize on the systematic behavioral biases of other investors by avoiding those stocks we believe are most likely to be irrationally overpriced, while our quantitative selection process potentially prevents us from falling victim to such biases ourselves.
We feel that consistently picking winners requires the ability to predict the unknowable future. Our investment philosophy is therefore to focus on only knowable information, which we believe helps us to avoid losers.
The RBP® Methodology enables Guggenheim to systematically apply a disciplined, rules-based process to each of the core investment functions.
- Portfolio construction
- Portfolio management
Our analysts generate the Required Business Performance® Probabilities of more than 2,000 stocks according to a strict rules system.
Disciplined Portfolio Construction
Each portfolio using this process is based upon a Guggenheim index, which in turn uses the RBP® Probabilities provided by Guggenheim Investments in its construction.
Disciplined Portfolio Management
Portfolio rebalancing only occurs when there is a change in the underlying index components. The portfolio manager has no discretion, eliminating the influence of behavioral biases on his decision making and creating perfect sell discipline.