We tend to buy more stocks and increase our stock exposure during periods of time of market stress, not because we're just a natural contrarian, but because we know based on history, when the market goes down, the forward expectations for equities actually go higher. The risk of loss goes lower. So when other investors are running for the hills selling stocks, when the market's already down, we tend to buy more equities, reduce our fixed income exposure when equities are rich, when sentiment is positive, when euphoria is flowing in the market, if you will. We are reducing our equity exposure, increasing our fixed income exposure, doing it in very much a countercyclical way to that of the rest of the market. Between fixed income and cash. We think about it in two different ways. We think about, first, what is the yield we're getting on both of those? What is the risk of loss in the fixed income sleeve? Because obviously if rates were to rise, fixed income holdings decrease in value. So if you can get a very attractive return on cash and you think there's a potential for rates to rise, you might hold more cash. If you believe rates are more likely to go down, you hold a little cash and more fixed income. We think about the mix between fixed income, cash, equities. I would describe it. We will have more cash in the portfolio during periods of market euphoria and/or when fixed income yields or spreads are low. When fixed income spreads and yields are high, you'll tend to see less cash, more fixed income, and potentially less equity exposure to the extent that the equity market is rich. We have the flexibility to go where we see value in the marketplace. We have choices both within our fixed income exposure. Do we want to go short duration, long duration. Do we want to have investment grade versus high yield? In cash we can have cash that provides a relatively constant return. When equities are expensive and fixed income yields are not attractive or spreads are not attractive, we will put more money to work in cash, as more of a safe haven in that environment.

Capital allocation is something that me and my team spent a lot of time on. It's a really important topic. It's one of the marketing efficiencies that we're trying to exploit for on a long term basis. Capital allocation really refers to how companies deploy their excess capital, their free cash or their debt capacity. Are they buying back stock? They're doing acquisitions. What are the returns on those acquisitions? What are the returns on those buybacks. Are they paying dividends? Are they issuing new debt. All these things are really, really integral to how fast the company can grow over a long period of time. Many companies fail at capital allocation. They pay too much for acquisitions. They're more focused on becoming a bigger company than a better company over time. Now we'd like to find companies that are actually buying back their stock, doing acquisitions that grow earnings, grow cash flow and increase the quality of the company as well.

GARP stocks refers to ‘Growth At a Reasonable Price’. These are companies that on average can grow earnings in the low double digits, sometimes in the mid teens. These are companies that tend to have really good management teams, really good capital allocation. Companies that tend to be a little less volatile from earnings or even from a beta perspective in the market. And it's probably the most inefficient part of the equity market. Why is GARP inefficient? If you think about all the potential investors in the market. A growth investor might look at a GARP stock and say, you know what? It doesn't grow fast enough, so I'm not interested in it. A value manager might say I'm not willing to pay 18 or 19 times for that company, because I have all these ten multiple stocks on my benchmark. A hedge fund is looking for high volatility stocks when you want to make a bet on a quarter. And a retail investor really has never heard of many of these companies in the past. So there's no natural buyer for these GARP stocks. So as a result of that they trade for a valuation that is too low relative to their fundamentals.