From 1965 to 1967, the mainly self-taught Lew Arno, right, was really raking it in. He seemed to possess that sixth sense about which stock to buy and when to sell. As his fortunes amassed, his friends took note and, of course, hopped on board.

Then, over the course of two weeks, he lost it all. “I just got greedy,” Arno says. “There I was, 26 years old with two small children and I had let myself become totally broke.” It was a true epiphany for Arno. And his eyes were opened to an investment truth that he maintains to this day: Risk is terrible. You can get crushed in a single stroke and never know what hit you – or why.

Today, as founder and president of Critical Math Advisors, which recently moved from 29 Emmons Drive to 3840 Quakerbridge Road, Arno keeps his clients’ investment risk managed as scrupulously as possible. While he is the first to point out that all investment – even money in the mattress – involves some risk, he insists this risk can be managed in a way that removes you from the market’s whimsical free falls.

Such management may be witnessed in Critical Math’s Adaptive Allocation Fund. Launched initially in 2006 – then tweaked and re-launched in 2007 the fund has been netting investors a cool 20 percent annually despite this rollercoaster market.

“The truth,” says Arno, “is that the average investor tends to invest emotionally, which is the worst thing one can do.” When the market rises, like it did during the high-tech spikes of early 2000, investors feel euphoric. As stock prices rise they buy more.

Conversely, at the first sign of a stock prices beginning to tumble, as in 2008, panic sets in. Fearing further loss, they sell their holdings quickly.

Euphoria, fear, and panic are the collection of feelings that guide the mass of investors into a buy-high and sell-low strategy.

It is generally accepted that every 10 years, stock prices are going to experience the biggest fall and the greatest rise in a decade. As well as being fiscally prepared, investors had best hold sufficient emotional resolve not to yield to the yearnings of the heart or gut instinct.

For decades, countless surveys have shown that fewer than 15 percent of investors read the annual reports of the companies in which they put their money. Such booklets, filled with confusing charts and yawning statistics hold far less appeal, apparently, compared with a friend’s hot tip whispered in their ear.

Since the Buttonwood Agreement first launched the New York Stock Exchange in 1792, such friendly, murmured advisories have been the primary inspiration for stock purchases. Yet for Arno and other wise investors, the hot tip is an inspiration not to purchase, but to study.

“I can’t tell you how many clients have come in all excited to buy this or that stock because they’ve been told it’s good and the product is really useful,” says Arno.

But they did not, as Arno will, check the timing of this firm’s growth, its stock and company history, its people, and the overall financials.

“People need to ask themselves what they want from an investment. What do they hope to gain? And what strategies do they plan to take them there?” says Arno. It is fine to buy an index fund, but when will you need it to mature? If the children are now ages eight and nine, then investing in a ten-year fund might give you cash to meet the initial college bills. “It’s all a matter of having an investment strategy,” says Arno, even a simple one based on a time horizon and what you hope to accomplish is better than no strategy at all.

These are the questions that only the investor himself can answer. Armed with this knowledge, he may begin to examine a specialist, or a fund to see if it suits his need.

An increasing number of investors are finding their exact fit in Creative Math’s Adaptive Allocation A and C Funds, and the more select Adaptive Allocation Portfolio.

This diversified, highly flexible investment model, which began as a fund for Arno’s closet clients, has quickly quadrupled to more than $90 million in assets.

To keep one foot in all the camps, Adaptive Allocation funds spread their assets among S&P 500 industries, the Russell Index 2000, equity, domestic stocks and bonds, foreign bonds, real estate investment trusts, emerging markets, and federal securities.

In operation, Adaptive Allocation acts much like a traditional, highly managed, risk-limiting hedge fund. Not to be confused with the recent rash of insane gamblers who floated stratospheric fiscal architecture with no foundation, traditional hedge funds offer steady, dependable growth from a diversified list of instruments. But Creative Math’s are mutual funds with the added advantages of no-penalty liquidity, full regulation, and daily pricing.

Most financial advisory and mutual fund firms embrace names including “wealth,” “aggressive growth,” “security,” and “value.” But Critical Math points to Arno’s own approach to teasing the market.

In his salad days, Arno’s high school doo-wop band hit it big, briefly, with its 1961 recording of “Imagination.” In a brief time however, the stardust was swept from his eyes and his mother, a secretary, and father, a metal worker, informed him that he was 18 and of an age to, as the song said, get a job.

Through serendipity, the young Arno joined a factoring firm. “I didn’t know what a factoring firm was,” laughs Arno. “Accounts receivable and invoice discounting were unknown to me. But I saw my first spread sheet and fell for it instantly. I have always loved trying to figure out the puzzle of what the numbers are trying to tell us.”

This numbers puzzle naturally drew Arno into equity investing, and just as naturally made him a success. The factoring company sent Arno to school, and over several years at New York colleges, he earned a bachelor’s in accounting and finance.

By the early 1970s Arno had taken his skills to Connecticut General Insurance company and become that firm’s top producer, with his whole series of estate planning innovations.

In 1982 Arno launched his own firm, which offered investment guidance and estate planning for high-net worth individuals.

It was an old fashioned kind of development. Arno became a master at his trade, unfolded his skills to his few friends, and then to an expanding number of clients.

But the benefits he has brought have built him a loyal following. He maintained this company until developing the Adaptive Allocation Funds in 2006 and Critical Math Advisors in conjunction with it.

A sixth sense or reliable modeling? On October 15, 1987, Arno’s study of his mathematical models revealed a trend. Markets were about to plunge. Everything pointed to it.

The next day, a Friday, he tore off a high-alert newsletter to his customers telling them to get out of common stocks and move their funds into money markets immediately. The message, sent out over a new-fangled machine called a fax, did its work.

On October 19, 1987, the stock markets earned the name “Black Monday.” Arno’s clients were saved from a catastrophic downturn that brought total ruin to thousands. Similarly, in the 1990 Persian Gulf War and the 1998 Russian-Asian crisis, Arno warned his clients in the nick of time. It pays to study math.

Right along side the name of Critical Math Advisors, LLC, stands the words of Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” A worthwhile bit of wisdom for the sustaining of our fortunes, as well as ourselves.

#b#CriticalMath#/b#, 3840 Quakerbridge Road, Suite 130, Hamilton 08619; 609-631-7400. Lewis Arno, president.

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