November 14, 2015

Weather Helm

What is “Weather Helm?”

“Weatherhelm” is more than a name, it’s a statement about sound investing:

In moderate wind (10 to 14 knots), a sailboat that is properly balanced exhibits a “weather helm” — a tendency to turn into the wind. This is counteracted by pulling the tiller slightly to weather (the direction of the wind) or turning the wheel away from the wind. A sailboat that acts in this way is considered safer because in the event of gear failure or lack of attention to the helm, it will round up (head into the wind) rather than fall off into a possibly dangerous jibe.

Maloney, Elbert S., and Charles F. Chapman. “Seamanship Under Sail.” Chapman Piloting: Seamanship & Boat Handling. New York: Hearst Marine, 1999. 216.

WeatherhelmFigure

The analogy to portfolio construction is that in volatile markets, an investment portfolio should reduce risk.

A well built portfolio – like a well designed sailboat – will exhibit weather helm.