Deen Capital Management, Inc.     Our Goal: Outperform the S&P in both up markets and down.
Our Goal: Outperform the S&P 500 in both up markets and down.
Our Result: +70.2% for the 60 months ending November 21, 2017 (vs +106.1% for the S&P)
Contact us by email
PO Box 30925 Santa Barbara CA 93130 800-353-4990 email info@deencapital.com

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Risk Management


"The first rule of investing is don't lose money.  The second rule is don't forget Rule No. 1."
        - Warren Buffett


"My priority in a down market is to avoid losing money. Sitting on cash is the simplest and most sure-fire way of doing that. This means I may miss a big up day now and then, but that's OK since I also miss many big down days."
        - Ken Deen

Preserving your investment is a high priority at Deen Capital.  So how do we do this?

On a stock-by-stock basis, we set a mental stop-loss price on every stock we buy. If the stock closes, or appears poised to close, below that price, with rare exceptions, we will sell.  In this way, we keep most of our losses small -- in the single digits.

During bear market conditions, however, this is not enough. The stocks we favor tend to outperform the market substantially under normal market conditions, but they also underperform severely during bear market conditions. This fact makes it imperative that we employ an additional layer of risk management -- some form of risk control in a down market.

Our preferred method of market risk management is to maintain a high level of cash during bear markets and corrections.  (And when we say a "high level of cash", we mean 50% to 100%. This contrasts sharply with most other money managers, who rarely raise cash beyond 10%.) The challenge with this method of risk management, of course, is to identify the proper time to move to cash and the proper time to move back into stocks.

In making this decision -- whether to be mostly in stocks or mostly in cash -- Mr. Deen relies heavily on a number of tools and technical indicators. The most important of these are:

  • Our NASDAQ Timing Model. This proprietary computer model was developed and refined by Mr. Deen over many years of research.  It analyzes the daily price and volume action of the NASDAQ Composite and gives, each day, either a "bullish" reading or a "bearish" reading. When the reading changes, that means the Model is giving a signal.
  • Our Performance-of-Recent-Stock-Picks Index.  Mr. Deen scans the market on a daily basis, looking for stocks which he believes represent excellent buying opportunities on that particular day. On a typical day, Mr. Deen may have zero to five stock picks. (Not all of these stock picks are actually purchased.  Indeed, most are not.) The subsequent performance of these stocks is measured and distilled down to a single number, the Performance-of-Recent-Stock-Picks Index. This Index is normalized to a range of -10 to +10.  A positive Index means that Mr. Deen's recent picks have mostly gone up since their respective buy dates; a negative Index means they have mostly gone down.  In interpreting this Index, Mr. Deen looks not only at the number itself but also at how it has been changing.  A falling Index could be a danger sign, even if it is still positive.
  • The Percentage of Stocks Trading Above Their 50-Day Moving Average.  This metric, computed at Deen Capital, is limited to stocks over $8. More important than the number itself is its direction of change. A rising percentage is bullish; a falling percentage is bearish.

In addition to these three primary indicators, Mr. Deen also looks at a number of other factors, including economic and geopolitical news, how the market is reacting to news, technical price/volume patterns, and interest rates.