Resources

Our Investment Beliefs and Philosophy

The following outlines our investment philosophy that we developed over the last twenty six years and has proven appropriate for our clients.

1. The fundamental investment risks that we all face are outliving our assets and not achieving our desired financial goals and objectives.
Since consumer prices could triple over the next 30 years, long-term investors must not only be concerned about preserving their principal, but also with protecting their purchasing power and growing their assets over time. If you understand this investment risk, you can take greater advantage of the tenets used by the institutional investors.

2. An Investment Policy Statement (IPS) is critical to a successful investing experience and to a successful client / advisor relationship.
An investor’s clear understanding of his or her investment goals, time horizon and risk tolerance is the first step to creating an investment plan. An understanding of investment history will help determine the risk level with which you are most comfortable. A good IPS is invaluable in times of market turmoil and can instill discipline in the investment process. At each client meeting, we first review the IPS as a basis of evaluating performance and recommendations.

3. Time is one of the most powerful forces in any investment program.
The length of time investments will be held, the period of time over which investment results will be measured and judged is the single most powerful factor in any investment program. This is because time transforms certain investments from least attractive to most attractive and vice versa.⁽¹⁾ Time allows for the compounding process to work for an investor. In summary, we believe in TIME, not market timing.

4. Asset allocation (Equity, Alternative Investments, Fixed Income and Cash) is the most important decision made in the investment process.
Studies indicate that over 90% of investment return is determined by asset allocation (stocks, bonds and cash) decisions⁽²⁾, not individual security selection.

5. Diversification of equity investments among style (growth and value) and size (large, mid and small cap) makes for a smoother ride on the road to investment success.
Each investment style and size category has unique performance characteristics which do not necessarily correlate to each other. While we prefer the intrinsic value style, we understand a portfolio should comprise all of the various asset classes and styles. Most of a portfolio’s return and volatility will be due to style and size decisions, regardless of whether these decisions are made explicitly or implicitly.

6. “It is not the head, but the stomach which determines your fate” ⁽³⁾
Investment success is purely a function of two things (1) recognition of the inevitability of major market declines; and (2) emotional / behavioral preparation to regard such declines as non-events.⁽⁴⁾ A well thought out Investment Policy will help protect your portfolio from yourself and which considers your income needs and investment time horizon and includes an appropriate asset allocation model designed around style and size diversification will help you cope with the inevitable market declines and capitalize on the opportunities presented when they occur. Your ability to cope with investment volatility is your admission ticket to long-term superior returns. It is our job to help you with this task.

7. Don’t let the tax / fee tail wag the economic dog.
It is appropriate to strive to keep taxes, trading costs, and management fees as low as possible. However, the economics of an investment is the most important consideration. Put another way, you must not allow the tax tail to wag the economic dog.

8. Blending active institutional managers with passive institutional investments is the best way to build a successful portfolio.
We do not believe the market is always efficient, but we do believe it is always in the process of becoming efficient.⁽⁵⁾ Very few managers can consistently take advantage of temporary inefficiencies and outperform over a very long period of time. This is why we have a very short list of Guru institutional managers for each style and size category. We monitor these managers carefully, focusing on risk adjusted performance, style consistency, discipline and other traits that makes them “Guru Mangers”. Please refer to the article “What It takes to be a Guru”.

9. We eat our own cooking.
Our principals invest their personal assets with the same managers, individual stocks and other investments as our clients. And when selecting investment managers, we select managers who have a significant portion of their net worth invested in their portfolios along with our money. We believe that managers with true conviction will invest along side their investors.

You will not find another investment advisor who is more committed to the realization of your personal financial goals and objectives. We enjoy working with clients we admire and respect and who share our values. Having similar values and mutual respect is the basis of a successful client / advisor relationship. Please contact any of our principals or directors with your questions or comments.

1. Charles Ellis, Winning The Loser’s Game
2. Brinson, ct. al. Study

3. Peter Lynch, Beating the Street
4. Nick Murray, The Excellent Investment Advisor
5. Peter J. Tanous, Andrew P. Tobias, Richard C. Breeden, Investment Gurus: A Road Map from the World’s Best Money Managers

Pledge and Commitment to Our Clients

We are fee only advisors and represent only our clients! The only fee we charge our clients is based on percentage of assets under management. We will not impair our independence by accepting any other form of compensation such as commissions, soft dollar deals, etc. We will strive to be the lowest cost while being the highest quality financial quarterback for our clients.

We will strive to help design and update as necessary an asset allocation plan to meet a client’s established goals that will become a part of each client’s investment policy based on a thorough understanding of each client’s:

Goals & Objectives
Time Horizons
Income Needs
Risk Tolerance
Total Net Worth and Asset Pool under Management

We will choose managers who have demonstrated superior risk adjusted returns compared to style peers and have traits and characteristics that we believe are important to compound capital over a long period of time. In addition, we will monitor these managers to ascertain whether they continue to be worthy of our confidence.

We will invest substantial amounts of our capital in the same investments we invest our client’s money and treat your investment as if it were our own.

We will diversify our client’s portfolio by style and manager, but not over-diversify.

We will constantly monitor managers for changes in investment style, performance relative to peers, cost, etc. We will seek to avoid funds/managers who charge loads, exit fees or 12b-1 charges. Using our leverage, we will negotiate fees with managers to the extent possible to make sure our client is receiving the best deal possible.

We will do our best to communicate and educate our clients on the benefits of asset allocation and modern portfolio theory as well as “intrinsic value” investing, to produce superior risk adjusted returns as well as the benefits of sticking with an investment plan. Also, we will attempt to add additional value to our clients by functioning as a personal CFO during quarterly meetings.

We will be the most tax efficient possible in a taxable account, striving to maximize risk adjusted after tax returns. However, we will not let taxes interfere with prudent investment considerations.

We will provide performance reporting quarterly that will be comprehensive and benchmark against criteria established in our clients’s written investment policy.

We will choose any individual stock investments based on their discount from our appraisal of intrinsic value, their competitive position and management, and our assessment of their free cash flow potential.

We will buy individual bonds using a ladder approach as to maturities and duration considering the client’s goals and objectives and asset allocation plan as well as risk and reward of yields and credit of issuer.

We will be flexible and commit ourselves to superior service to our clients.

Margin of Safety Quarterly