Our investment approach is based on the same Nobel prize research upon which the American Law Institute built its prudent investing guidelines for trust fiduciaries.
For those who like chasing the latest hot tips we suggest you continue with your broker. Our Wealth & Investment Management is a long term investment approach designed to minimize risk and still deliver the returns the markets offer. You worked hard for your savings and now you don’t understand what has happened in recent years to what you thought was a safe investment. We work with you to establish a sound investment policy based on your goals and comfort level. Then we diversify your portfolio based on Nobel prize winning research and your investment policy. The end result; your nest egg will receive market rates of return at a minimum of risk.
What we DON’T do:
We don’t time the market. WHY NOT? Research has shown only 2% of your actual long term return comes from timing the market.
We don’t pick the hot stock. WHY NOT? Research has shown only 4% of your actual long term return is determined by stock selection.
We don’t charge any commissions. WHY NOT? We don’t buy individual stocks and therefore there are no commissions for recommending you buy or sell.
These techniques may win in the short run but we are interested in long term investment success.
So just what do we do? One simple principle.
We use investment allocation based on Nobel Prize Research to minimize the risk you take and assure you earn the return the market offers. Do you have an investment policy? If you don’t it is just like going through life not knowing where you are headed. You probably won’t be satisfied with where you wind up either. We work with you to determine your investment needs, the level of risk you are willing to take and to insure your investment portfolio is based upon your investment policy. Everyone likes hot returns. Unfortunately most people don’t realize, the pain of your investments going down is twice as strong as the joy of them going up. We don’t guarantee a percentage return. We guarantee you market rates of return at the risk level you are comfortable accepting.
This Nobel Prize based investment philosophy is designed to:
- Diversify your investments
- Structure investments to minimize risk
- Minimize investment expenses to the investor
- Minimize income tax cost which is the highest single cost of most investments.
- Deliver market rates of return while performing the above
Exactly how is the money invested?
There are thousands of mutual funds out there all chasing the same 5,000 stocks and all trying to convince you they can beat the market. We primarily use Dimensional Fund Advisors (DFA) funds to diversify your portfolio. DFA was formed to provide a diversified investment approach for large pension funds and institutional investors because they are not interested in market timers and stock pickers. Individual investors cannot even purchase shares in DFA funds without using a approved investment advisor. DFA funds are designed as low cost funds which allow you to diversify your portfolio based on Modern Portfolio Theory which won the Nobel prize for investment research.
Don’t take our word for it. If you want to read more about DFA and what Modern Portfolio Theory is really all about read these articles:
1. The Best Fund Family You've Never Heard of -- and Why It Doesn't Want Your Money By Beverly GoodmanSenior Writer - The Street.Com 08/26/2002 07:11 AM EDT
2. How the Really Smart Money Invests. Nobel Prize winners entrust their nest eggs to DFA, where investing is a science, not a spectator sport. Shawn Tully, Fortune Magazine Magazine Issue: July 6, 1998
3. DFA Funds Hard to Buy, Easy to Own, By Timothy Middleton CNBC on MSN, June 4, 2002, Copyright 2002
4. A WORLD-CLASS MENU OF 401(K) CHOICES, By Paul Merriman, CBS.MarketWatch.com, 1:35 AM ET Jan 16, 2002
5. Active Mismanagement: The Case for Index Funds By Beverly Goodman Senior Writer - The Street.Com 08/12/2002 07:25 AM EDT
6. Best of Breed, DFA US Small Cap Value Takes an Active Approach to Passive Investing, Bloomberg Wealth Manager, Mar 2003
1. What is our investment philosophy based on?
A long-standing debate about the stock markets has been whether or not they are “efficient.” The Efficient Market Hypothesis (EMH) is the basis for the body of academic work known as Modern Portfolio Theory, upon which the American Law Institute built its prudent investing guidelines for trust fiduciaries. EMH states that markets quickly and accurately reflect available information, and are setting “fair” prices for buyer and seller.
As investment advisors advocating a passive strategy, we heed the academic evidence indicating markets are too efficient to accept the cost involved in identifying mispriced securities. We instead recommend that investors allocate their investments according to equity risk factors, which can be expected to compensate investors with real, after expense premiums. Portfolios are designed to meet each investor’s unique ability, willingness and need to take risk (and its commensurate expected reward.). Passive management as opposed to active management is the practice of constructing a portfolio by using funds that are proxies for specific asset classes or markets, based on the theory that it is so difficult to persistently outperform the market that it is cheaper and less risky to just buy the market. Characteristics of this investment approach include lower portfolio turnover, lower operating expenses and lower transaction costs; greater income tax efficiency, a long term perspective, broader diversification, periodic style-drift correction and incorporation and incorporation of separate dimensions of worldwide returns.
2. Understanding where others have failed:
The consulting firm Future Metrics studied the performance of 213 major US corporate pension plans for the 15-year period 1987-2001. How did they compare to comparable passive benchmark portfolio? Out of 213 pension plans attempting to outperform the market using active management, 9 percent of them succeeded. More than 90 percent failed. It would be logical to assume that individual investors, with far fewer resources available, would likely fare even worse.
Vanguard studied 420 domestic balanced mutual funds that existed at any time between 1962-2001 (provided the fund had at least five years of performance history and significant allocations to both bonds and equities). The study concluded that, on average 77% of a funds monthly return variation was explained by policy allocation. Security selection and market timing collectivity explained the remaining 23%. It also found that more than 100 percent of the achieved return could be attributed to asset allocation. How can a contributing factor be more than 100%? This means that the costs associated with market timing and security selection actually reduced the realized return below what would have been achieved if no such efforts were made.
Examine the performance of Morningstar's top rated funds, after they receive their top rating. The Hulbert Financial Digest tracked the performance of Morningstar's five-star funds from 1993-2000. For that eight-year period, the total pretax return on Morningstar's top-rated US funds averaged 106 percent, compared to a total return of 222 percent for the total stock market as measured by the Wilshire 5000 Equity Index. Hulbert also found that the top-rated funds, while achieving less than 50 percent of the market's return, carried a relative risk (measured by standard deviation) that was 26 percent greater than that of the market.
Should You Invest in Growth or Value Stocks? There is very strong historical evidence supporting the “value effect” in equity markets — the fact that value (high book-to-market) stocks have provided higher returns than growth (low book-to-market) stocks over the long term. For example, a data source that serves as an appropriate proxy for comparing growth versus value performance is that provided by Dimensional Fund Advisors (DFA). Using DFA’s data for the period 1964-2000, US large value stocks outperformed large growth stocks by 14.7 percent to 11.1 percent and U.S. small value stocks outperformed small growth stocks by 17.4 percent to 11.9 percent. The evidence is just as strong in international markets. For the period 1975-2000 international large value stocks outperformed the EAFE index (international large growth stocks) by 18.7 percent to 13.7 percent.
Institutional Investor magazine created an all-star team consisting of the “top” analysts in each industry. These analysts are chosen based on a poll of hundreds of institutional investors. In 1980, Financial World set out to measure the performance of these all-stars. After months of digging, the magazine managed to determine the recommendations of 20 superstars. For the period in question, while the market rose 14.1 percent, following the recommendations of the all-stars they could identify would have provided a return of just 9.3 percent.
3. What have market timers and stock pickers done to gain an advantage?
Regulators said a quarter of USA’s major brokers have engaged in illegal late trading. In more evidence that small investors are being shortchanged, regulators also said nearly 450 brokerages have overcharged on fund purchases and ordered them to notify their customers of possible refunds. Nearly 30% of brokerage firms assisted market timers, and almost 70% were aware of market timing by customers. About half of mutual fund companies appear to have arrangements to allow some customers to engage in market timing. Excerpts from Probe Into Mutual Fund Abuse Widens-1 in 4 major brokers breaks rules-USA Today 11/04/03
The SEC says 30% of fund companies disclosed details about their portfolio holdings to favored customers. Armed with the knowledge of what funds are doing, those customers could buy or sell along with the fund and make outsized profits. The industry has been fighting against increased portfolio disclosure to ordinary investors for years. Even worse, 10% of the fund companies surveyed may have allowed late trading. Late trading is when customers put in a trade after the funds’ 4pm cutoff but get the pre-4pm price. It’s like betting after the race is over, and it’s illegal. Excerpts from Scandal Outrage Keeps Growing-USA Today 11/04/03
Ask yourself a few questions??????
1. What has your experience been as you look back through your investment history?
2. What are your financial goals?
3. What are you looking for in an investment advisor?
4. Do you have a written investment policy?
5. If so, is your investment policy designed to diversify your investments, minimize your expenses, minimize your taxes, minimize your risk and deliver market rates of return?
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