Investment Management:

Our Investment Philosophy

Our investment philosophy adheres to the four tenets of Modern Portfolio Theory (MPT) that have become the cornerstone of the Prudent Investor Act:

Markets are inherently efficient

Markets process all available information so rapidly in determining the price of any security that it is statistically improbable to gain a competitive edge by exploiting the occasional anomalies. This means that to “beat the market”, an investor would have to possess not only the correct insight or information regarding a specific security, he would have to be the only investor to possess it, and he would have to do this consistently over time.

Exposure to risk factors determines investment returns

Academic studies have confirmed that an investor’s return is overwhelmingly dependent on exposure to the specific risks associated with the various asset classes. Over time, riskier assets provide higher expected returns as compensation to investors for accepting the greater risk. This is the basic concept underlying the Nobel prize-winning strategy (MPT) that has become the new legal standard for prudent investing by fiduciaries.

Diversification reduces portfolio risk, and increases expected returns

Adding low-correlating asset classes, even if they carry a higher risk on their own, can actually reduce overall volatility on a portfolio level, and increase expected rates of return. By intentionally designing portfolios to incorporate various degrees of exposure to different asset classes, we can help investors to create the most efficient (highest expected return) portfolio for the level of risk they are willing to assume.

Disciplined portfolio management increases expected returns

The traditional way of managing investments, active stock picking, has been based on forecasting growth and earning in attempts to "beat the market". This strategy is expensive in terms of trading costs and tax liabilities passed along to the individual investor. Rather, we add value through our disciplined approach starting with the assumption that markets are extremely competitive and profiting from anomalies is improbable. We engineer highly diversified allocations focused on taking appropriate risks that deliver higher expected returns. This strategy is not tied to commercial benchmarks nor seeks to chase recent high performance; rather it is a disciplined approach that accounts for real-world frictions such as costs, tax and momentum.