Our investment philosophy was formed by years of observation, by studying academic research and by learning from the sages of the industry.
The following are our thoughts on various aspects of investing that form the foundation of our investment philosophy:
Forecasting – No one has demonstrated, with any consistency or precision, the ability to forecast the economy, the financial markets, or the future performance of specific investments. We are planners, not prognosticators and believe that forecasting adds no value to the investment process. In fact, we think it can be detrimental to one’s financial health.
Market Timing – We do not embrace market timing for the same reason we do not pay attention to forecasts: no one has demonstrated, with any consistency or precision, the ability to time the markets. Another problem with market timing is that you have to be right twice – when to get out of the market and when to get back in – and to do this on a continuous basis.
Financial Media – The financial media is in the news business and not the truth business. Their business plan requires stories or pundits that will grab the biggest audience. Reading their news stories or listening to talking heads instills a need to react to what’s going on in the financial world. This tempts us to enter the world of traders rather than maintaining a long-term perspective as disciplined and patient investors. We advise our clients to tune out the financial media or, at a minimum, to view it as nothing more than entertainment.
Behavior – Investor behavior is the greatest determinant of investment results. Having patience, discipline, faith in the future and a long-term perspective are essential for investment success.
Long-Term Perspective – After fifty years of research, political scientist Dr. Edward Banfield of Harvard University, concluded that long-term perspective is the single most accurate predictor of social and economic mobility in America – more important than family background, race, intelligence, connections or education. Accordingly, we feel that this viewpoint is essential for investment success.
Diversification – Diversification is the best defense against risk and uncertainty. Mutual funds are a more cost effective and efficient way to diversify than owning a portfolio of individual stocks or bonds. Combining asset classes that in the short term move dissimilarly to one another will mitigate the risk within your portfolio.
Evidence-Based – The foundation of our investment philosophy is built on decades of peer-reviewed research by economist Eugene Fama who was awarded a Nobel Prize for his work. The structured asset class funds of Dimensional Fund Advisors (DFA) are built around this rigorous and time-tested academic research.
“Investor behavior is the greatest determinant of investment results. Having patience, discipline, faith in the future and a long-term perspective are essential for investment success.”