What is Orcus?
Way, way out at the edge of our solar system lies Orcus, a dwarf planet with a single satellite, or “moon”.
Relative to its primary planet, with a mass roughly 16% that of Orcus, that moon is the most massive satellite in the known system of planets and dwarf planets, making Orcus unique.
Because of its large relative mass, the satellite doesn’t dutifully rotate around Orcus. Instead, the two rotate around their shared center of gravity.
And until recently, when looked at through a telescope, the pair were indistinguishable. The two appeared to be one celestial body.
In other words, two bodies look and act like one. And, importantly, the satellite is as vital to Orcus as Orcus is to its satellite; without each other the two would not remain in orbit around the sun.
A little stargazing illustrates a useful framework for investing: pairing disciplined risk management with portfolio construction works well.
The two pieces not only co-exist, they complement each other.
Risk and reward co-exist and should work together
Our logo embodies the notion balance enhances stability
(Our graphic designer calls the little widget he hung over the “O” the “watchful eye of Orcus”. How can we disagree?)
Diversification is one of the key tenets of prudent and successful portfolio management. We agree.
But as institutional investors, we also have seen some benefit from tactically altering what a portfolio holds when market conditions warrant. It makes sense: when valuations change, compensation for the risk borne by an investor also changes, so adjust what the portfolio holds.
To avoid overreacting with too many tactical changes, the key is to remain systematic and disciplined.
We tend to use a framework with a Core portfolio set up as a long-term “buy-and-hold” allocation designed to accomplish financial goals while embedding diversifying assets within the Satellite, managing that portion tactically.
In other words, construct a Core sleeve intended to hit financial targets over the long-term and pair it with a Satellite sleeve designed to diversify and smooth out bumps, adjusting it as needed. Bundle the two sleeves into a single portfolio.
By varying the proportionality between the Core and the Satellite, the pair remain “in orbit” and accomplish financial goals with greater risk-efficiency.
The two pieces work together and the outcome tends to be better.