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Philosophy/Approach
Find a strategy best aligned with your goals
The choices we make when we invest have a huge effect on our ability to provide what’s best for our families and ourselves. While there are many investment strategies available, it is important to find one that is best aligned with each person's individual goals.
I began my investment career quite simply – as an investor. In researching the various strategies available, I kept in mind my overall goal of achieving the greatest expected return for the level of risk with which I was most comfortable. After filtering through many investment philosophies, I finally found one that made consummate sense to me. As I continued to research this philosophy and apply it to my own investments, my belief in this method strengthened. When I was certain that it was one of the best investment options available, I decided to offer it to my clients. I believed that they, too, would find it as logical and prudent as I have. And they have.
The program I chose is called Passive Asset Class Investing.
And why was Passive Asset Class Investing my choice for developing prudent, long-term portfolios? The answer can be found in a brief overview of its history.
Passive Asset Class Investing, a brief overview
In the early 1950s, Nobel Prize Winner Harry Markowitz originated a theory about diversified investing. Prior to that time, investors knew intuitively that it was smart to have a diversified portfolio and not put all one’s eggs in one basket, so to speak. But while others accepted the advisability of spreading one’s investments among several options, Markowitz was among the first to develop a process that could actually quantify risk and demonstrate empirically why, and how, having a diversified portfolio reduced risk.
Markowitz was also the first person to establish the "efficient portfolio" concept. According to Markowitz, an efficient portfolio is one that has the smallest attainable risk for a given level of expected return. *
Years later, some of the world's leading academic economists** conducted extensive research that showed that asset class selection***— not stock selection or market timing — is by far the most important determinant of portfolio performance. This research ultimately became what is known as Modern Portfolio Theory (MPT).**** MPT is based on the basic tenets that:
- Markets process information so rapidly when determining security prices that it is extremely difficult to gain a competitive edge by trying to exploit market anomalies.
- Over time, riskier assets provide higher returns as compensation for accepting greater risk.
- Adding high-risk, low-correlating asset classes to a portfolio may actually reduce volatility and increase expected rates of return.
- Passive asset class fund portfolios can be designed with the expectation over time of delivering the highest expected return for a chosen level of risk.
These four basic tenets earned their founders a Nobel Prize.
What does the application of these tenets mean for you, the investor? They form the basis of a disciplined, long-term-investment strategy that is logical, sensible, cost effective, and tax-efficient. By adhering to the basic tenets of MPT, I can help you to accurately diversify your investments across multiple asset classes while adhering to your individualized ability, willingness and need to take risk.
* Or the largest expected return for a given level of risk.
** Nobel Laureate Merton Miller (no relation), Eugene Fama and Kenneth French
***such as large growth or international small value
**** MPT forms the basis for Passive Asset Class Investing and the American Law Institute’s 1992 Restatement of the Prudent Investor Rule. If you want to know more about MPT, there is plenty of information to be found on the Internet. Use your favorite browser and search the phrase.
