Investment Philosophy
The cornerstone of our digital advice platform is our pioneering work in the science of diversification. We believe that portfolio diversification is the crown jewel in the withering corpse of modern portfolio theory.
Diversification is an active strategy and a powerful source of alpha.
It works best when strategies have activity to capture price movements, whether this comes from active management or from rebalancing. Account dormancy is antagonistic to correct diversification implementation.
More data, more measurement, more systemization
With vast seas of financial data, superior sustainable investment performance must have roots in quantification and systematic processes. The days of stock-picking gunslingers are over. Investors demand more.
Process diversification can help portfolio diversification
Diversification applies not just to the investments but to the process itself. We regularly analyze our investment processes to search for undue sources of concentration and seek to optimize.
Diversification = systematically imposed Discipline.
Fundamental and Value investing works.
Fundamental investing and value investing are the bedrocks of good security selection. Whether a stock or a bond is growth or value, estimating a fair market value or an expected return for that asset based on the company's fundamentals is a sound approach. Value only means that the asset is mispriced and could thus be purchased with the intent of selling later closer to its fair market value.
It is better to quantify more than less. –
It is better to quantify more than less. Imagine you hire a financial advisor who makes a weekly decision to be 100% long in the market or to be out of the market. He is quantifying one thing: the market for the next week. This is one-dimensional and exposes investors to massive concentration risks (in this case, the advisor’s forecasting ability). Whether forecasting weather, politics, or investments, the results are definitive. Measure more. Today, weather forecasting accuracy is better than ever because they measure more things in more places and more frequently. They measure so much data that it takes supercomputers to process it. Or think about the 2012 presidential race. Campaigns are not run state by state but are highly optimized down to the zip code. More measurement means more accuracy. In investments, more accurate estimation means better performance, and measuring more variables helps to maximize process diversification.
Talent Exists.
Talent in investment management is much more prevalent than most give credit to. That does not make it easy to spot, even if you look right at it. Creative investment strategies run by smart, disciplined, and process-driven people can be great sources of diversification for most any portfolio. We can help.
Investors are human
and humans make emotionally charged, and often poor, decisions. The growing body of work known as behavioral economics sheds important light on this, and investors behavior does not change rapidly. Systematic strategies can be built to capitalize on the market inefficiency caused by the behavioral fallabilities of investors making emotional decisions with incomplete information.
Investment Philosophy
Diversification, like gravity, is simultaneously both a very powerful and very feeble force. It is the omnipresence of each force that gives them their power.
Just like architecting a building while ignoring gravity would probably fail, architecting an investment portfolio while ignoring diversification increases the chance of failure.
Applying our knowledge of True Diversification® enables us to build portfolios that balance the diversification of systematic risks with the diversification of non-systematic risks. Investment strategies and indexes purporting to be well diversified because they hold large quantities of investments are typically wildly overexposed to systematic risks and thus out of balance, subjecting their investors to additional risk.
Portfolio Diversification
is not a silver bullet; it cannot guarantee success. However, proper diversification is not only prudent; we believe it can help performance. Managed properly, diversification could provide several extra percentage points to buy and hold strategies of the same assets.
Diversification can work with nearly any decision-making process involving risk, and we can work with about any kind of strategy and investment product (stocks, bonds, hedge funds, mutual funds, exchange-traded fundsFunds (ETF’s) commodities, currencies, etc.).
