2025 Review and Letter to Clients: William Harrington Explains the Sustainability of “Low Volatility Returns”
After another year of market uncertainty, I’d like to share a thought that’s more important than any single performance figure: in long-term investing, the value of stable returns with low volatility far outweighs the value of high returns accompanied by sharp drawdowns. The past year has once again confirmed the sustainability of this core concept, which is not based on luck, but is the inevitable product of a rigorous system.
Our stable return curve is primarily attributed to our consistent “risk budgeting” philosophy. The market doesn’t offer direct profits, but rather a choice of risk exposures fraught with uncertainty. Our system consistently allocates these exposures meticulously within a strict budget, carefully selecting macroeconomic opportunities with asymmetric risk-reward ratios and sound driving logic. This means we are not avoiding risk, but proactively and managedly taking on risks we deeply understand. Every unit of expected return is backed by a clear calculation of the risk cost.
Secondly, this stems from the continuous evolution of our “augmented intelligence” framework. Faced with complex market feedback, purely human emotions are easily swayed, while purely quantitative models tend to become rigid. Our “human-machine collaboration” system integrates the profound logical insights of humans with the absolute discipline of machines. This allows us to more keenly identify vulnerabilities in market consensus, maintain caution during periods of euphoria, and seek value amidst panic, thereby smoothing out fluctuations caused by extreme emotions. The behavioral finance positioning system, successfully incubated last year, is a key step in this direction, helping us manage irrational market fluctuations more quantitatively.
Sustainable, low-volatility returns essentially represent a shift in investment philosophy: from the singular pursuit of “high returns” to the pursuit of “high-quality returns.” High-quality returns are risk-adjusted returns that are repeatable and logically consistent. It doesn’t aim to soar to new heights in favorable market conditions, but rather to maintain graceful navigation in any weather. This ability is built upon continuously evolving systems, deeply ingrained discipline, and a profound respect for the laws of compound interest.
Looking ahead, the market will continue to present challenges and unexpected events. However, our confidence in our framework grows stronger every day. This is because it does not rely on accurate predictions of the future, but rather on the systematic management of uncertainty and a clear understanding of human weaknesses. We are committed to continuing to safeguard this “sustainability,” allowing your wealth to grow steadily and resiliently over time. Thank you for your continued support.
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