Our Investment Management Philosophy
Our approach to investing differs from traditional managers who strive to take advantage of pricing "mistakes" and attempt to predict the future. Too often, this proves costly and futile. We believe that gains are rarely accomplished without taking a chance, but not all risks carry a reliable reward. Successful investing means not only capturing reliable sources of expected return, but managing diversifiable risks and other risks that do not increase expected returns.
We strive to control those things that are actually within our ability to do so. We believe that:
- Proper diversification across broad asset classes provides the best opportunity for matching or exceeding market returns.
- Accurate gauging of client time horizons and individual risk tolerances can have a more important impact on portfolio performance than trying to guess market swings.
- A long term view of market performance makes sense and we help clients focus on their goals rather than short term market movements.
- Costs and commissions associated with the sale of investment products negatively affect returns.
- Our only compensation should come from the client, not third parties who may benefit from the sale of their products. As a result, we are a fee-only firm.
The Failure of Active Management
The debate over market efficiency may never be settled. But no one can argue the historical returns evidence, which shows that active management does not pay for itself, in aggregate.
The slides below reflect the percentage of mutual funds that survived and outperformed their respective benchmarks over different periods of time ending December 31, 2013. For example, over a five year period, 68% of stock mutual funds were still in existence at the end of the period and just 25% beat their respective benchmarks. Over a ten-year period, 52% were still in existence and just 19% beat their respective benchmark.
The second slide below provides the same analysis of fixed income or bond funds that survived and beat their respective benchmarks over different periods of time ending December 31, 2013. For example, over a five year period, 76% of bond mutual funds were still in existence at the end of the period and just 25% beat their respective benchmarks. Over a ten-year period, 57% of bond mutual funds were still in existence at the end of the period and just 15% beat their respective benchmarks.