Our investment management process starts with three rules; Transparency, Accountability & Simplicity. We will discuss with you the rationale for the recommendations we make on your portfolio to ensure transparency throughout the investing process. We also demand effective yet easy to understand methods for measuring results and will explain all outcomes honestly. There are times when your portfolio may behave differently than the benchmarks. We will explain the causes and the impact on our decision making. We maintain accountability for all of our management decisions. We have the training and resources to use rather sophisticated modeling and tools to assist our investment process. However, we require a back to basics core understanding of your investment portfolio strategies before we implement any of them. We will avoid products that are too complex to perform full due diligence on. We also strive for simplicity in our explanation of portfolio decisions. Explaining concepts in simple terms is often an indicator of true understanding and we find no benefit in creating confusion for the sake of making a high brow impression.
Asset Allocation – Our most important investment service is determining which asset classes to invest in and how much to allocate to each. The primary asset classes are Stocks, Bonds, Cash and Real Assets. Within each asset class there are sub-categories such as Large, Medium, Small, International, Emerging Market, Frontier Market, Commodities, Timber and Real Estate to name a few. There are also “styles” of companies such as Growth, Blend and Value.
Our approach to asset allocation is to start with risk management. We use your personal financial plan as well as in-depth risk tolerance measurements to determine your personal family risk target. From there we put together an asset allocation plan that fits within your risk target. We use a technique called “risk budgeting” where we seek asset classes that we believe will provide the highest risk adjusted returns on a forward looking basis. We will budget more of your portfolio’s allotted risk to those asset classes and offset that risk within our allocation to other asset classes. We update and monitor your personal family risk budget on a regular basis.
Portfolio Implementation – Once we have determined your asset allocation plan, we will select investment positions for your account. Depending on your portfolio parameters and special circumstances we may utilize individual bonds and stocks in your portfolio. We may also recommend actively managed mutual funds. We spend considerable resources analyzing portfolios and we seek mutual fund managers that provide consistent risk adjusted excess performance within their specialty.
Index Funds – We believe that investment markets are efficient at pricing securities in the long term, but they are prone to periods of behavioral mispricing which can be capitalized on by adept security selection. As such, we seek active managers with specific expertise and a proven track record in their specialty. However, outperformance is harder to accomplish in certain segments of the investment market where the costs of discovery may outweigh the benefits of active management. Where these conditions persist, we may use low cost index funds, which replicate a passive index to gain broad market exposure at lower costs. We also utilize index funds to gain exposure to certain market segments on a shorter term tactical basis that may be attractive due to market dislocations, where we intend to hold the position for less than five years.
Contrarian Value – We are predominantly contrarian value investors. We approach portfolio implementation decisions with the belief that behavioral bias in investment markets creates periods of over valuation and under valuation in certain market sectors. We pay particularly close attention to valuations (how much investors are paying for a security) and seek to invest more heavily in lower valuation securities and reduce allocation to sectors trading at high valuations. This contrarian approach sometimes leads to periods of time where our portfolio behavior is out of step with the broad market, what your neighbors are predicting and the general mood of the market media. We believe that this contrarian temperament is an important component of portfolio management, even if it is unnatural to move against the current.