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We believe in the basic tenets of capitalism: that capital is most efficiently allocated through a private enterprise system, that self-motivation provides incentive for each individual to pursue rational economic decisions, and that the overall system is conducive to ongoing economic growth. The continuing expansion of the global economy provides diverse opportunities for investment, where we seek to put our clients' capital to work in the context of well-diversified, risk-controlled investment strategies. Key elements of our investment philosophy include:
- Investment Risk - Most of our clients have become successful through hard work and by taking risks in building their businesses and careers, for which they have been rewarded with strong income gains and growing net worth. We believe our best service to our clients is to help them continue to accumulate wealth through a prudent investment strategy and to preserve their capital by controlling investment risk.
- Time Horizon & Equity Exposure - We believe a successful investment plan depends upon the long-term adherence to a strategy, and time horizon is a critical determinant of the appropriate strategy. Over long periods of time, stocks outperform all other asset classes, but at the cost of greater volatility over the shorter term. We believe that as the time horizon for investment increases, the risk of holding equity securities decreases.
- Asset Allocation - We believe that one of the primary determinants of investment success is disciplined asset allocation, which is simply the proper diversification of a portfolio across numerous asset classes and markets that are not highly correlated with one another. This diversification reduces overall portfolio volatility and provides the anchor for a well-designed investment plan.
- Taxes & Investment Costs - Considerable research points to the negative impact that investment expenses and taxes can have on returns over the long run. We design portfolios to factor in tax considerations of the various different types of accounts used (e.g., taxable vs. tax-deferred) and we seek low-cost and/or tax-efficient investment vehicles where practicable.
- Market Efficiency - We believe that while markets are generally quite efficient over the long run - and security prices tend to accurately reflect all past market information - active investment strategies can add value to portfolios. Markets may not always accurately price securities, such as when technology stocks were dramatically overvalued during the internet bubble of the late 1990s. Further, certain less researched markets and sectors may provide opportunities for active investment managers to identify superior investments. We believe that active management and passive index investment strategies are not mutually exclusive and that both can be effectively deployed within an overall investment plan.
- Valuation Discipline - We have respect for the importance of valuation in determining investment returns and we pay close attention to how the market values the various asset classes. We do not avoid what are frequently called "growth" stocks or sectors; rather, we focus on constructing balanced portfolios and carefully consider valuation levels when making purchases or sales. Of greatest importance, we reduce exposure to sectors or asset classes as their valuations rise to "expensive" levels.
- Tactical Portfolio Enhancement - We believe long term returns can be enhanced by making periodic adjustments to each client's portfolio based on the relative risk/reward characteristics of the available asset classes. Overweighting asset classes, markets or sectors when they are out of favor and less expensive on a valuation basis improves return potential. Similarly, underweighting more expensive areas reduces portfolio risk. We make moderate adjustments to portfolios to take advantage of these insights.
- Manager Selection - The disparity in performance between top-quartile and bottom-quartile investment managers is significant and we believe careful selection of managers is an integral component of a successful investment program. For asset classes where active investment management will be utilized, we select preeminent institutional money managers who specialize in particular market niches or investment strategies. We believe combining multiple managers with distinct areas of expertise provides greater diversification, reduces risk and generates more consistent returns over time.
- Small Capitalization Versus Large Capitalization Asset Classes - Large capitalization companies tend to provide better safety and stability, whereas smaller capitalization companies provide superior growth opportunities. Historically, small cap equities have provided returns superior to large cap equities, at the price of greater volatility over the short run. We typically maintain some exposure within client portfolios to smaller and mid-sized capitalization companies due to their being in an earlier stage of their life cycle and their superior growth prospects.
- Emerging Markets Versus Developed Markets Asset Classes - We believe emerging markets provide the opportunity for superior growth relative to developed international markets. The case for emerging markets is conceptually similar to the case for small capitalization stocks and, similarly, we typically maintain some exposure within client portfolios to emerging markets securities.
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