Investing Philosophy

Invest, don’t speculate.  Most of what is commonly called “investing” is nothing more than speculation, and is probably more akin to gambling in an environment where the deck is heavily stacked in favor of “the house.”

Investors are rewarded over the long term.  The short term matters because that is how we experience our investment decisions, but we must always guard against making decisions because of short term performance.

Portfolio construction explains the vast majority of performance.  It starts with defining asset classes, then building a portfolio diversified across those asset classes that add value independently and when combined with others.

Robust portfolio construction must be followed by strong portfolio implementation.  This means efficient execution of the strategy at the outset, rebalancing as necessary along the way, and regularly revisiting the strategy to ensure alignment with financial objectives.

Control costs.  Fees and taxes have obvious detrimental effects on investment performance.  Given the immediate and guaranteed benefit of cost reduction, ceteris paribus, portfolio managers should spend as much effort on this as they do anything else.  Costs must be aggressively controlled and the savings returned to investors.

Active management must be viewed with extreme skepticism.  Individual security selection has yet to be proven effective over the long term in most asset classes after one takes fees, taxes, and other costs into account.

Markets work.  That’s not to say that markets are always right – they are sometimes led astray – but they do take into account all available information fairly efficiently.  Betting against them can be a very expensive endeavor.

Return is related to risk.  To earn more return, one must take more risk.  Risk, however, does not promise a certain return, and it is the job of portfolio management to protect against excessive and unrewarded risk-taking.

Globalization is real and will continue.  Portfolios that do not recognize and embrace the global marketplace will suffer over time.