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Our Investment Philosophy
Efficient Markets
We believe that the stock market is efficient, and we feel it is very hard to outperform the market by picking individual stocks. To implement this strategy we use institutional funds that target a specific asset class or asset classes. These funds are low in relative cost and low in turnover. Low turnover funds usually have lower capital gains and better performance over the long run.
Funds
We use passively managed institutional funds that invest in securities which represent the characteristics of certain asset classes such as large cap or small cap stocks. These passively managed funds use a consistent strategy for the securities that they invest in. This is important because some actively managed funds are not always consistent with their investment style. Actively managed funds sometimes chase hot asset classes, sectors or stocks and this can ultimately undermine your asset allocation.
Institutional mutual funds typically have much lower expense ratios than the average mutual fund, and these funds are available to clients of financial advisors and in other institutional accounts such as 401(k), etc.
Diversification
We strongly believe in diversification around the world. Diversification with domestic and international stock and bond funds helps to reduce overall portfolio volatility.
Small stocks vs. large stocks
Historically, small companies tend to outperform large companies because they are riskier. We implement this strategy by using asset class specific funds or core funds on both the domestic and international portions of a portfolio.
Value vs. growth stocks
Historically, value stocks tend to outperform growth stocks because they are riskier. We implement this belief by tilting towards value stocks by using asset class specific funds or core funds on both the domestic and international portions of a portfolio.
Market timing
We do not believe in market timing. Our definition of market timing is selling all your positions and going to cash, then at some later time repurchasing all your positions. In general, we feel this process is destructive to your long term investment plan.
Bonds
We believe the bond market is efficient and that longer maturities are typically not worth the risk. We usually stay short term with our bond funds, and we diversify around the world.
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