Our Investment Methodology
We take a very circumspect approach to investing. Our methodology is based on decades of
experience, along with dozens of well documented academic studies proving our core beliefs. We are extremely skeptical of most advisors and continue to have very little trust in Wall Street banks, brokers, bankers, analysts, traders, and in the financial industry as a whole. We feel that Wall Street’s number one objective is to make profits for themselves. In order for them to make money, they need to motivate you to do something; buy, sell, merge, go public, spin-off, divest, pledge, reorganize, borrow, lend, refinance, insure, hypothecate, and so on. This is how they make themselves money. Activity makes them rich, but inactivity is often the most prudent way to invest. Our number one objective is to protect and grow our client’s assets, and when it comes to growing and preserving wealth, inaction is often the best course of action.
We are also convinced that most segments of the market are now highly efficient, and that the vast majority of professional portfolio managers cannot (and will not) outperform their appropriate, risk-adjusted benchmarks, especially over the long term. And of the small percentage of portfolio managers that have consistently outperformed in the past, this percentage is actually less than you'd expect to get from pure random chance. Most outperforming managers were just plain lucky. We feel that the few incredibly skillful managers that do (possibly) exist today, are virtually impossible to identify in advance. Therefore, it does not make economic sense to try to find them. Our extensive research has also uncovered that after accounting for all risks, and all fees and all taxes, there is absolutely no persistence in a superstar managers outperformance in future years, beyond that which would be expected by pure random chance.
Due to all of our extensive research, findings and beliefs, we almost never recommend that our clients invest directly into individual stocks, individual bonds, or into actively managed funds (mutual funds, hedge funds & private equity funds). Instead we recommend that our clients take a very simple, yet very effective ‘passive’ investment approach, and invest in a carefully selected group of well balanced, globally diversified, index funds, passively structured institutional funds (that have similar characteristics to index funds), and in Exchange Traded Funds (ETFs). These funds aim to achieve the same investment returns as a particular market segment or asset class. By following our methodology, our typical client is invested in approximately 12,000 different stocks and 8,000 different bonds from over 40 different countries. This massive global diversification mitigates most of the risks of investing with a handful of managers or in a limited number of individual stocks and bonds.