Our Investment Philosophy

History has shown that long-term investors are most successful when they stick to a proven investment strategy through good times and bad.  By “sticking to a strategy” we do not mean buying an investment and simply holding it forever.  Rather, we prefer strategies that permit modest adjustments to a portfolio in response to compelling market opportunities as they arise.  For example, sometimes the investments of a given asset class will be selling at bargain-basement prices.
To be successful, investors must be willing to weather the inevitable ups and downs of the markets.  This can be difficult.  Market declines can produce anxieties and powerful emotional reactions that undermine one’s ability to stay the course.  If we give in to those feelings and abandon the strategy before it has a chance to produce results, then it doesn’t really matter how sound the underlying strategy was.  Chances are, we will end up with diminished long-term performance.
Our basic investment philosophy is that the management of risk in a portfolio is just as important as the management of return.  
    • Managing risk means reducing exposure to loss in case the market should decline.  This helps investors remain calm so they can avoid “bailing out” at or near a market low, which is a common mistake that often results in reduced long-tern returns.
    • Managing return means selecting high performance investments and combining them into portfolios in a complementary way, thereby causing the whole portfolio to become greater than the sum of its parts.  This “synergy” tends to enhance returns without requiring an increase in the portfolio’s risk level. 
We construct all of our portfolios with this basic philosophy in mind.  Here’s how we put that philosophy to work.
1) Well-Defined Targets and Limits.  Every good investment strategy needs a framework of discipline. To achieve investment success you need to know where you are headed and what it will take to get there.  Every portfolio we build has a specific target for long-term return and an associated benchmark that can be used to measure progress toward the target.
We also set specific limits on the amount of risk we are willing to take in managing each portfolio.  While there is no guarantee that we will always hit our targets, the structure we provide helps the investor understand what to expect and whether the portfolio is producing the desired results.
2) Minimize Losses.  We always pay special attention to how our portfolios perform in poor market environments.  Declines in portfolio value cannot be entirely avoided during tough markets, but portfolios can be designed to limit losses relative to the markets in general. 
In designing and managing our portfolios we try to soften the impact of difficult markets so our clients can weather the storm and ultimately reach their financial goals.  For example, we might replace a relatively volatile mutual fund with a less volatile fund of the same type. Or we may temporarily reduce the percentage of the portfolio devoted to one of the naturally volatile asset class.
3) Steady Progress.  We seek to produce solid, consistent returns rather than placing big bets that could produce alarming swings in portfolio value.  Investment strategies that “shoot for the stars” and try to maximize short-term returns usually involve a high degree of risk.  We believe that most investors want to protect what they have and are looking for a reasonable balance between risk and return.  We understand this and construct all of our portfolios to limit declines in difficult markets.
In our view, an investment strategy that is intended to produce consistent returns year after year can build wealth more effectively than a roller-coaster strategy that produces large gains at some times followed by large losses in others.  Patience produces steady progress, and steady progress helps investors stay the course.