The essence of investment management is the management of risks, not the management of returns. That fundamental point is what distinguishes superior investment management from the average. We apply time-tested portfolio construction strategies and proprietary risk management techniques in managing our clients’ investment portfolios. Our approach is designed to: (1) avoid large losses and (2) stick to a disciplined portfolio strategy that is consistent with the principles of (3) modern portfolio theory. This is done by by rooting out and combining select investments from among broad asset classes from diverse global markets. Our objective is to generate real returns (i.e. in excess of inflation) over time, in excess of historical equity returns at commensurately lower risk levels than the S&P 500 index.
- Avoiding large losses – the effect of large losses in an investment portfolio is devastating to wealth creation. There have been five separate declines of 25% or more in popular US equity indices from 2000. Figure that a 25% decline requires a subsequent return of 33.3% just to return to break-even and you quickly understand why avoiding large losses is our first priority. Making risk measurement a component of performance objectives and emphasizing loss prevention strategies is at the core of our investment management philosophy.
- Disciplined strategy – asset allocation is a proven strategy for mitigating portfolio risk while optimizing return for a given level of risk. We do not believe a pure buy and hold approach is effective to mitigate risk. We customize allocation according to each investor’s personal risk profile and investment time horizon. We actively rebalance the allocation at least quarterly. For taxable portfolios we seek to mitigate tax liability through a variety of techniques.
- Modern Portfolio Theory – MPT has proven to be an effective basis for optimizing returns and mitigating portfolio risk for more than a half-century. Our investment management approach draws significantly on the lessons of MPT in portfolio construction but, augments it with tactical strategies to further reduce risk or seek to exploit short-term market opportunities at the margin, as appropriate, and according to our proprietary set of indicators.