The following are ten core beliefs that we are convinced are crucial to you becoming a better investor. These beliefs make up our investment philosophy and drive our investment methodology.
Investing in Capital Markets is Crucial To Your Success
We believe that owning good companies is the best way for you to invest your long-term money. Historically, the domestic and global equity markets are the only asset classes to provide a significant premium over inflation. Invest a significant portion of your money in equities, despite their inherent volatility.
Stock Prices Reflect All known Information
Every day, there are close to 100 Million stock trades executed around the world. Each one of these trades are made by somebody who has access to the same information you have. There is no “information advantage”. Every stock trade represents somebody putting their hard earned money at risk based on what they believe the future holds for their particular stock choice. We believe the price of a stock reflects all current known information concerning that stock.
The Days of Picking Individual Stocks Are Over
There are more mutual funds today than there are individual stocks. Most likely, any trade you place for an individual stock is against a market professional. These professionals have more resources and time to analyze the available information than individual investors. The days of outsmarting each other are over.
The Right Managers Can Still Add Value
Academic research has identified dimensions of the market with higher expected potential returns. Investment processes based on this research can yield superior performance. Simple passive indexing cannot take advantage of these dimensions. These dimensions are pervasive, persistent, and robust and can be pursued in cost-effective portfolios. We would like to remind you that past performance is no guarantee of future results.
Add Value by Subtraction Not Addition
It is almost impossible to build a superior portfolio one stock at a time. Each and every individual stock has to be evaluated based on perceived pricing errors before it is added to the portfolio. It is very expensive and time-consuming process. A better approach is to take a large slice of the stock market and remove those investments that do not possess the dimensions that have shown higher expected potential returns.
Diversification of Asset Classes is Essential to Your Success
Balanced investing between equity and fixed income markets is critically important to your peace of mind. Ultimately, successfully meeting your objectives is more likely to happen if you are comfortable with the structure of your portfolio and can deal with often extreme market fluctuations.
Diversification Within Asset Classes is Also Essential
Lack of diversification within asset classes does not pay. We use mutual funds because of their inherent diversification so that no one stock or bond can significantly affect your investment returns. If any individual stock can significantly alter your lifestyle, you have too much money invested in that stock.
Include Fixed Income Investments When Appropriate to Enhance Portfolio Stability
We utilize fixed income (bond) investments to help provide income and stabilize overall portfolio value in market downturns. We do not use leveraged fixed income funds or “junk bond” funds in your portfolios.
Investor Behavior can be the greatest determinant of success or failure
We believe that adherence to a portfolio asset allocation appropriate to your ability to handle investment risk is of paramount importance. A large part of our primary mission is to assist you in dealing with the inherent fear generated by downside market volatility. Take a look at our article on How Far Your Investments Can Drop, to get an idea of the amount of market risk you are comfortable with.
Everybody Needs a Goal Oriented, Carefully Crafted Portfolio
The management of your money is serious and should not be a source of excitement or entertainment. A well-structured portfolio designed to meet your financial goals is an intensive and arduous process. Staying with a portfolio during market ups and downs is counterintuitive to human nature. Having faith in the future, along with patience and discipline will help you stay the course.
It is our privilege to help guide you through all phases of the investing process on the way to meeting your goals. We hope you find these beliefs helpful in constructing your personal investment philosophy.