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The Grail Equity Management System (GEMS)

The Alchemy of the Grail Model

The Grail Equity Management System (GEMS) is a unique momentum and growth model, which was developed through years of research. Thereby it was realized that the conventional wisdom about risk and return was wholly incorrect, because it is based on a static model called the Normal Distribution Curve, see the second graph. However, the stock market histogram shifts continuously, and is normally assymetric, favouring either the positive or negative side of the average. Here we see that the second graph has an 85% bias in favour of positive returns. How signifiant is this lopsidenness? Very! Because the risk metrics of the normal distribution curve can lead to wrong conclusions. For example, standard deviation, a key metric of volatility, is used to quantify risk is shown as a static number, but like the market itself the metric also changes with prices, as the third graph shows.

Further, conventional wisdom argues that investment in growth stocks are riskier than the so-called blue chip companies! However this is fundamentally incorrect since growth stocks offer far higher returns, because company products are in high demand as reflected in their revenue and earning-per-share growth profiles. The third graph shows that the S&P 500 is far more negatively volatile than the Ultima Alpha portfolio, which conversely holds far more positive volatility. This is because the S&P 500 stocks have in aggregate companies whose products are in lessor demand, which stints their earnings more than those of Ultima Alpha companies.

These false assumptions alone act as major inhibitors for investors, who are advised to seek the safety of 'less riskier' stocks, and then find to their dismay that the resulting lower returns can easily convert into losses on a market turndown, the likes of which we have see from the start of the bear market at the end of October of last year.

GEMS's selected stocks generate absolute returns in U.S. stocks with no more risk than the S&P 500! The Model has been throughly tested over several years and is applied with excellent results in Grail's advisory capacity to its clients. The system focuses on market leaders that elevate to the top 10% of the $30 trillion U.S. market. This is because such companies have their highly successful business strategies, which cause strong demand for their stocks. It's that simple!

The stock market driven by investor sentiment

The Normal Distribution Curve misjudges risk

The Value at Risk calculates daily changes in risk

The Basis of Outstandng Stock Selection

To identify high grade stocks it is essential to analyze the drivers of their performance. The graph shows how this is achieved. The Grail Equity Rating System (GERS) applies 26 data points, which are weighted in terms of their relevance to Grail's search for high calibre Alpha Stocks. As earnings growth is the primary catalyst that drives stock prices 44% of the analysis concentrates on this variable.

Click in graph to enlarge