Our Investment Philosophy
We believe that the most important decisions investors can make involve the selection of appropriate investment mixes and the commitment to maintaining a disciplined long-term approach through thick and thin. We know this goes against much conventional Wall Street wisdom and marketing hype regarding today’s hot stocks or other investments. Yet we believe that choosing and building portfolios of asset classes, rather than individual securities, has the greatest, most reliable impact on investment results. Our singular objective is to provide our clients with reasonable rates of return that allow them to preserve their purchasing power and achieve their long-term financial objectives.
Balancing Risks and Opportunities
Investing always involves risk, though the kinds and levels of risk you take significantly affect your outcomes. Managing investment portfolios involves balancing risks with opportunities. For example, not investing involves the risk of eroding your purchasing power over time. We believe that proper global diversification is the key to mitigating losses in the short-term, while exposure to growth-oriented investments is the key to preserving your purchasing power over time.
To this end, we construct balanced portfolios exposed to global investment markets for our clients. This allows us to choose investments from the broadest selections of opportunities available. We do this because at different times some markets prosper while others struggle, so by diversifying our investments globally, we seek to obtain the best returns possible given the risks we take.
Research has shown that the single best predictor of future performance is the cost of your investments. Costs include expenses you pay for management, trading and taxes incurred when you earn profits.
We strive to find the lowest-cost ways to implement our investment strategies for you. When appropriate, we start with index funds or institutional mutual funds in order to find the lowest-cost implementation of each investment idea, using more expensive active management only when we believe it will add value. Every dollar we save you in expenses is a dollar that grows over time to meet your long-term goals. We seek to shelter tax-inefficient but profitable investments, and will actively harvest losses when necessary to preserve them for use against future gains.
Grounded in Research
In liquid, well-regulated markets like U.S. capital markets, the price of a security is generally a pretty good reflection of all the known information about that security. Market indexes can be thought of as combined portfolios of similar stocks. Historically, very few actively managed funds have consistently beaten their index benchmarks, and the higher their fees, the more they generally fall short.
Academic research has identified quantifiable factors that lead to higher expected returns over time. These factors have nothing to do with skill or luck, but rather with the kinds of stocks you buy. So instead of relying on a single manager’s intuition or presumed ability to find information that others do not have, we build portfolios using a disciplined structure rooted in academics, focusing on identifiable factors that we believe, over time, will lead to better performance.
We work hard to keep the costs of our investment portfolios as low as possible. Our portfolios consist of low-cost funds, using either index-based or quantitative strategies, or institutional funds whenever they are available. We seek to capture identifiable sources of excess performance, such as a focus on smaller companies, discounted valuation or profitability. By overweighting these factors in our portfolios, we believe that we can achieve superior investment results over the long-term.
Core and Satellite Strategy
While many parts of the capital markets may be highly efficient, resulting in prices that generally reflect all the known information about securities, many are not. In markets that may not be efficient, we seek to add additional sources of return to your portfolio by seeking active management in those asset classes that have demonstrated low efficiency, such as high yield or “junk” bonds or emerging markets.
In asset classes where informational advantages and research may provide an edge over passive strategies, we seek to identify active managers who may be able to add value to client portfolios and provide additional diversification.
Our Investment Process
Each organization’s investment philosophy defines how they think about making investment decisions, and the theoretical prism through which those decisions are viewed. Investment process is the actual nuts-and-bolts activities that translate an investment philosophy into specific recommendations for each client. Our investment process has four basic steps: discovery, design, implementation and review.
One of our first tasks as your advisor will be meet with you to ensure that we understand your objectives as they relate to the funds entrusted to our care. All portfolio investment decisions are driven by our understanding of your needs and our mutual agreement on how to structure an investment portfolio in order to meet your objectives and desired outcomes.
We create an Investment Policy Statement (IPS) as our guide to achieving your objectives. Because it’ so important to get this document right, it is not unusual to work through one or more revisions as we work with you to align our thinking with your needs.
Portfolio Design – Using your IPS and our discussions with you as a guide, we will then deliver a proposed investment portfolio to you. This portfolio takes into consideration:
- Our evaluation of your risk preference and rate of return objectives
- Asset selections, liquidity and cost constraints required in the development of the long-term portfolio strategy
- An attempt to match any established goals and objectives with your risk and return preferences
Our objectives in developing your recommended portfolio will be to generate the highest possible rate of return over five years, commensurate with your tolerance for loss over any one-year time period of the investment program. We will also attempt to diversify your portfolio by including assets that tend to go up in value as others may decline.
Once we agree upon an investment portfolio design for you, the next step is to transition your existing portfolio to the new structure. Our preferred investment custodian (link to What’s a custodian? FAQ) is the Schwab Institutional division of Charles Schwab & Co. We have worked with Schwab for a very long time, and have found their commission costs and trade execution to be reasonable, and their service to be excellent. If necessary, we will facilitate the creation of investment accounts and any necessary transfers from existing custodians you may have. We will also work with you to ensure that your cash management needs are not interrupted.
As a discretionary investment manager, we assume a limited power of attorney to execute trades on your behalf, and begin the process as soon as is practical, once accounts have been opened and funded.
Our Investment Committee meets regularly to assess market and economic conditions, and to ensure that our current investment strategy remains appropriate. These firm-level strategic reviews, and any investment decisions made as a result of those reviews, will be applied by your investment team to your portfolio.
We constantly evaluate your allocation mix and review your portfolio to seek opportunities to rebalance your investment mix. We employ an opportunistic approach to portfolio rebalancing which seeks to look often but trade infrequently. Research has demonstrated that opportunistic rebalancing strategies tend to outperform purely mechanical calendar-based approaches by maximizing portfolio reviews and minimizing trading costs.
By periodically re evaluating your portfolio we intend to maintain equilibrium between your objectives and your risk tolerance, market changes and the economic assumptions used in constructing your portfolio.
This method of formalizing policies and objectives, establishing risk/reward parameters, selecting asset classes, defining allocation constraints and setting guidelines for performance evaluation is of paramount importance to maintaining your long term investment strategy and portfolio growth. Why? Because we invest with the sole purpose of helping you achieve your goals and dreams.