How We Think

Our Guiding Investment Beliefs

  • We believe the first step to creating a meaningful investment plan is to have a clear understanding of your financial goals, time horizon, cash needs, and ability to withstand portfolio declines over the short term.
  • Many individuals ask us what we would recommend for their portfolio before we know any of their goals. Salespeople are trained investors to ask this question. Without knowing your goals, there is no way to make a recommendation on specific investments. Just like there is no way for a doctor to recommend a treatment without knowing your symptoms and ordering tests.
  • The fundamental investment risk we all face is not losing one’s money, but outliving it or losing purchasing power to inflation. For planning situations we use a life expectancy of age 95 unless the client has specific health issues. This adds conservatism to our plans.
  • We believe your ultimate success in investing is largely dependent on how you react to the day to day events which affect markets. It is our job to help you maintain perspective in times of market extremes, both on the upside and downside. The average investor underperformed the market by 3% because they bought when prices were up and sold when prices were down.
  • We take the emotion out of investing and look at the value of assets. We buy when things are on sale and sell when they are expensive. This sounds simple, but we are inclined to move away from things that have hurt us in the past and move towards things that are pleasing. With investing this is just setting us up for a disappointment as expensive assets normally sell off and cheap assets eventually rise.
  • Diversification of equities and fixed income by style, size, and geography makes for a smoother ride when investing. At the same time, we constantly guard against “de-worsification” (i.e. over diversification).
  • Investment costs including trading costs, management fees, and income taxes must be kept in mind as these can dilute overall investment returns. We seek to reduce these costs by avoiding active trading, using institutional share classes when available, and managing accounts in a tax efficient manner. Cost is important in determining what you get from your investment. Our fund manager due diligence work focuses on returns net of costs. We like to say that it’s not what you pay a fund manager but what the fund manager pays you that is most important.
  • We believe blending active and passive management is the best way to build a successful portfolio. This helps to reduce cost, which as we noted above is important. We believe that using concentrated active managers, who are invested differently than the index, we will outperform over the long term. Most of this outperformance will be in periods when the index is going down, since one of the key features of the active funds we use is their ability to provide downside protection. Although many people may tell you that active managers do not outperform as a group, this also means that there are active managers who do outperform over the long term.
  • We believe in value investing. If an investment is purchased for less than its inherent value, we obtain a “margin of safety” and the strong potential for higher returns over the long term

The best way to measure your investing success is not by whether you’re beating the market, but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.

Benjamin Graham

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