Investment Philosophy

Our investment philosophy is based on decades of experience and Nobel prize-winning research, known as Modern Portfolio Theory.

Markets Work

Markets process all available information so rapidly that the price of a security reflects the knowledge and expectations of all investors. Though prices are not always correct, markets are so competitive that it is unlikely any single investor can routinely profit at the expense of all other investors.

Structure Explains Performance

A group of securities with shared economic traits is referred to as an asset class. Investors can benefit by combining the different asset classes in a structured portfolio.

A full range of asset classes includes small and large stocks, domestic and international, value and growth, emerging market countries, global bonds, and real estate. Because the asset classes play different roles in a portfolio, the whole is often greater than the sum of its parts.

Exposure to Risk Factors Determines Investment Returns

An investor’s return is overwhelmingly dependent on the amount of 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 that has become the new legal standard for prudent investing by fiduciaries.

Diversification Reduces Portfolio Risk and Increases Expected Returns

Successful investing means not only capturing risks that generate expected return but reducing risks that do not. Avoidable risks include holding too few securities, betting on countries or industries. To all these, diversification is the antidote. It washes away the random fortunes of individual stocks and positions your portfolio to capture the returns of broad economic forces.

The asset allocation decision (how much to put in cash, bonds, and different types of stocks) has been shown to be the largest determinant of variation in returns. Therefore, we concentrate efforts on the total portfolio composition and how assets are allocated.

Passive Portfolio Management Increases Expected Returns

Active management is expensive because of high salaries, fees and expenses, and these expenses reduce investment returns. The associated high turnover of securities creates trading costs and higher tax liabilities that are passed along to the individual investors.

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