Structured Investing In An Unstructured World
For more detailed information on our structured investing:
We recognize that wealthy individuals today have increased expectations for prudent risk management and sophisticated asset allocation. We offer a disciplined, unemotional, and highly diversified investment approach that offers objective advice and solutions to problems, rather than financial products to buy.
Our investment approach is called asset class investing. It is an approach based on the science of investing that cuts through the noise and confusion by focusing on what really drives investment return, helps to reduce volatility, and simplifies the investment process. The core concepts of asset class investing are not new. They are time-tested and supported by decades of empirical research.
Their Are Five Key Concepts Which Play A Vital Role In The Construction Of All Structured Investing Portfolios
Markets Work
Instead of trying to beat the market, we believe that you should let the market work for you.
In 1965, University of Chicago economics professor, Eugene Fama, developed The Efficient Markets Hypothesis.(1) According to Fama's research, it is nearly impossible to consistently "beat" the markets using stock selection or market timing. instead we believe investors should focus on capturing the capital markets, long term return.
We have reached the following conclusions with respect to the public capital markets:
- Current market prices incorporate all available information and expectations about the future, and are therefore the best approximation of intrinsic value
- Price changes are generally due to unforeseen events and cannot be predicted with any consistency
- Pricing errors occur, but they do not do so in predictable patterns and it is difficult to recognize them in real time.
- Financial market movements may not always appear rational and prices may not always be "correct," but market forces are so competitive that we believe it has yet to be demonstrated that any investor, or group of investors, can consistently profit at the expense of others, or outperform the market as a whole. The idea that markets works widely acknowledged by financial professionals and academic researchers alike. The implications of market efficiency are profound and affect a wide variety of financial and investment decisions.
Risk And Return Are Related
Markets can be chaotic, but over time they have shown a strong relationship between risk and return. This means that the compensation for taking on increased levels of risk is the potential to earn greater returns. According to noted academic research by Professors Eugene Fama and Ken French (2) , there are three "factors" or sources of potentially higher returns with higher corresponding risk.
The three risks that academic research have identified worth taking are:
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Invest In Stocks- Stocks have a higher expected return than fixed income.
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Emphasize Small Companies- Small companies have a higher expected return and risk than larger company stocks.
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Emphasize Value Companies- Lower -priced "value" stocks have a higher expected return and risk than higher-priced "growth" stocks
Diversify With Structure
When it comes to investing, risk cannot be eliminated, but it can potentially be reduced or mitigated through a prudent, structured approach. Successful investing means not only capturing risks that generate expected return but also reducing risks that do not. Avoidable risks include holding too few securities, betting on individual countries, industries, or sectors, following market predictions, and speculating on buy or sell recommendations from securities analysts.
Here is how asset class investing takes advantage of effective diversification
Combine Multiple Asset Classes
- Seek to combine multiple asset classes that have historically experienced dissimilar return patterns across various financial and economic environments.
Diversify Globally
- More than half of the market value of global equities is located outside the United States. International stock markets as a whole have historically exhibited dissimilar return patterns to the U.S... markets.
Invest in Thousands of Securities
- Compared to a portfolio concentrated in a small number of securities, investing in thousands of securities around the world can limit portfolio losses during a severe market decline by reducing company-specific risk.
Invest in High-Quality, Short-Term Fixed Income
- We believe the role of fixed income in a diversified portfolio is to reduce volatility. We seek to accomplish this by using funds that purchase short-maturity, high-quality securities that have a low correlation with stocks and strong credit quality.
Custom Portfolios
Traditionally many portfolios have been built using average historical returns and volatility of returns. We take portfolio modeling to the next level by analyzing what really matters to you-downside risk (the likelihood that an investment will decline in value) and the degree to which you are focused on asset protection versus asset growth. Our advanced approach to portfolio analysis is designed to optimize the process and match you with the portfolio that will help you reach your investment goals. While our portfolios vary in terms of composition and asset class weights, they all are designed and managed to:
Keep Cost Low
Minimize Taxes
Control Risk
Invest For The Long Term
We believe a long-term perspective is one of the most important ingredients of portfolio success. Stay patiently invested and don't try to time the ebb and flow of the market. And be sure to rebalance your portfolio periodically to keep it aligned with your goals.
Above all, don't go it alone. Working with a trusted independent Advisor can help you stay on track towards achieving your long-term investment goals. An Advisor can help you manage the emotions of investing and keep you from making hasty,ill-considered investment decisions.
For more detailed information on our structured investing philosophy
(1) "The Behavior of Stock Market Prices", Eugene F. Fama. Journal of Business 38 (1) 34-105
(2)"Cross Setion of Expected Stock Returns", Eugene F. Fama and Kenneth R.French, Journal of Finance 47 (1992).