Our Investment Philosophy

Equities

Stocks represent the ownership of businesses. Mainstream companies are generally rational, profit-seeking businesses, led by highly compensated professional managers for the benefit of the shareholders. For nearly a century, mainstream equities have provided compound returns about three times the general rate of inflation. Historically, a rate of return as high as the (rather conservative) figure of 7-9% has only been achievable in equities. We encourage our clients to think of themselves as long-term investors in great companies, not speculators on “the stock-market.”

Diversification

Broad diversification involves the spreading of a portfolio among disparate equity styles, sectors and geographic theaters which have historically run on different cycles. All we’re trying to accomplish by diversifying broadly is to suppress to some extent the short-to-intermediate-term volatility of the overall portfolio – because different components will be running on different cycles – while still earning the full returns of all the components in the long run. All we can reasonably ask diversification to do is mute somewhat the extent to which your portfolio will wander above and below its essential uptrend over time.

Forecasting

We cannot forecast the economy over the next month or year or whatever. No one can. We can’t forecast the markets, much less time them. No one can. We cannot predict, based on their recent past performance, which funds in a category are about to outperform their peers. No one can. It is simply not possible for anyone
consistently to gain a timing advantage over the market by going into and out of it. Any market outlook is irrelevant to our investment policy. We are long-term, goal-focused equity investors; the progression of our decision-making process remains goals-plan-portfolio. We’re guided in this by history, not headlines.

Volatility

Equities subject not merely your return but your capital itself to very wide variances. If you can’t ride out an equity market decline of close to 15% every year – and a decline averaging twice that, about one year in five – you simply cannot be an equity investor. Temporary declines, or corrections, in a well-diversified equity portfolio are as common as dirt. We encourage clients still in the accumulation phase of their careers to regard all declines as heaven-sent, in that they enable you to accumulate shares at marked-down prices. We’ve elected to be guided by history as opposed to headlines. When the talking heads insist “this time it’s different,” we respond instead “This too shall pass.” You would not be human if you didn’t experience some degree of fear at the direction of current events from time to time. The great achievement during those times is to not give in to the fear. In a very real sense, our whole job is helping you toward that achievement.

Reviews and Changes

We will review our overall investment strategy with you no less than annually, but provided your goals do not change in the interim, we do not expect to alter materially either your plan or your portfolio. Aside from a rebalancing of your portfolio, we will hardly ever recommend changing the portfolio as long as your long-term goals haven’t changed. While we rarely will make changes, these times of review are important to us as one of our goals is to ensure that you understand your investments and the statements you receive. We will strive to thoroughly answer any questions you may have about your plan so you can have confidence in your investment management company and in us as your advisors.