Candeo’s philosophy is to mitigate downside volatility in order to preserve principal without capping the upside appreciation potential of an equity investment portfolio. Candeo has developed a series of rule sets to mitigate downside risk. The goal of focusing on mitigation of downside risk is to enlarge the effect of compounding and seek a larger end return for the investor.

Limiting the number of negative quarters, lowering the nominal losses of any negative quarter, and not restraining positive quarter’s performances is a process that Candeo seeks to manage with several primary steps.

Minimum Capitalization Stocks: Every year Candeo derives a risk-weighted stock price for each company it processes through its algorithms by analyzing the financial statements of all U.S. exchange traded securities with a market capitalization greater than $1 billion. Candeo is prepared to buy each of those securities at that derived price. Larger capitalization companies tend to have greater financial flexibility and fewer incidences of bankruptcy than smaller cap companies. Typically, companies with better access to capital are also able to weather unexpected operational difficulties or, conversely take advantage of market opportunities.

Broad Diversification: Candeo builds a broad diversified portfolio of approximately 60 to 200 securities for each investor. Broad diversification can diminish returns in many strategies, but is a benefit in strategies that seek to limit the effects of negative volatility. Additionally, Candeo uses equal weight investing. Thus the worst news on any company at any time affects only a small fraction of the portfolio by minimizing company specific risk (unsystematic risk). Candeo does not see the long term value in concentrated portfolio positioning as occasional extreme negative volatility puts not only process of compounding maximization under pressure but also puts the principal balance at risk.

Re-Mix Annually: Candeo remixes ¹. It does not rebalance ². When an equity has matured in the portfolio then its value is reassessed. This happens at least once a Candeo cycle (12-15 months). At that time, the entire position in that equity is sold. However, if the equity is assessed to still have value, Candeo may choose to hold "repurchase" the same equity. In rebalancing, the strategy is to take a portion or all the profit earned by a security, adjusting the allocation of that particular equity’s position in the portfolio and use the proceeds to purchase an entirely different security.

Tactical Reallocation: Candeo’s investment strategy may direct the fund to tactically allocate out of a sector of equities or out of all equities. Periodically, there is a need to protect portfolios from deeply declining markets. These tactical allocations are short lived; historically the markets have remained depressed for less than six months. These past episodes demonstrate the importance of recognizing that equities are going nowhere but down during those periods.

Avoiding Growth Assumptions: Candeo’s valuation is not predicated on earning forecasts with growth assumptions. Candeo believes forecasting earnings in this manner has a high quotient of speculation. Candeo determines an equity’s value based on risk adjusted actual returns and measurable actions such as stock repurchases by a firm rather than future forecasted returns. Candeo’s investment strategy is designed to maximize the effects of compounding returns by purchasing risk adjusted cash flow advantageously, and diversifying widely to protect principal. These actions seek to materially dampen negative volatility. It is Candeo's beleif that negative volatility control is a more powerful and reliable way to grow a portfolio’s long-term value than the identification of even strong growth stocks that are exposed to full market volatility.

Continuous Improvement: Candeo has a large historical reference database to measure any potential ideas for improvement observed in live investing. This data is used to test the validity of the idea, as well as its consistency and robustness through a variety of stock market and business cycle enviroments.