Investment Philosophy

Following is a very short summary of our core beliefs with respect to portfolio design and implementation of an investment program.

• Active Management has three assumptions:
  1. markets are inefficient
  2. fund managers can outperform and do so persistently and consistently
  3. costs are not that important in the investment process
  
  
• It does not really matter whether markets are efficient or not because:
  1. fund manager outperformance does not persist to an exploitable level
  2. costs matter a great deal
  
  
• There are three major types of costs when dealing with a fund manager:
  1. management fees,
  2. turnover costs, and
  3. tax inefficiencies
  
  
• These costs impact on the potential return of investment dollars in a significantly negative way
  
  
• Passive management is an appropriate choice given it's low cost
  
  
• When constructing a passively managed portfolio there are two types of risk that need to be addressed
  1. diversifiable risk and
  2. non-diversifiable risk
  
  
• Since non-diversifiable risk cannot be diversified away, particular attention should be given to diversifiable risk
  
  
• Risk is diversified by 'not putting all your eggs in one basket'
  
  
• Passive management reflects this approach by spreading investment dollars over many stocks and not just a handful
  
  
• There are three main ways to diversify your portfolio that will potentially increase the return above the stockmarket as a whole:
  1. dividing investment dollars between stocks and bonds
  2. dividing investment dollars between small and large companies
  3. dividing investment dollars between value and growth companies
  
  
• There are risks associated with each division of capital but the portfolio can be tailored to an individual's tolerance to risk
  
  
• The capital markets will rise so it is important to stay the course once invested in a portfolio. There are two ways:
  1. match the portfolio's level of risk to the personality of the investor, and
  2. quantify portfolio goals, determine the path that the portfolio should take and regularly measure portfolio performance against this path
  
  
• It is important to have a contingency plan to maintain discipline when the portfolio deviates significantly from the individually tailored path so that the journey is not abandoned.