What is a Martingale?
Long-term link between company fundamentals and stock prices = long-term return
We rank thousands of stocks, overweight the most attractive and underweight (or sell short) the least attractive. We control market capitalization and industry exposures to reflect client benchmarks and we limit the investment in individual securities to ensure that portfolios are well diversified. We believe that identifying undervalued and overvalued stocks is a more reliable path to extra return than market timing and, consequently, we hold a minimum amount of cash. We routinely sell stocks that have performed well or have become fundamentally less attractive and replace them with stocks that have more upside potential. This insight-driven portfolio turnover leads to an average holding period of about one year.
For some clients, we apply long/short investing to more intensively exploit spreads and reduce risk. Martingale was one of the earliest advocates for the institutional use of long/short portfolios. Rather than ignore overvalued stocks, Martingale sees them as another profit opportunity. Long/short investing is a portfolio construction technique, not a strategy. With carefully combined long and short stock positions, we can more fully exploit valuation spreads while controlling stock market and industry risks.
To preserve the value captured during stock selection and portfolio construction, Martingale takes into account the full impact of trading. Trading is always predicated on best execution. We do not generate soft dollars for the benefit of Martingale.
