Investment Philosophy

Investors should focus on the long term when investing as markets can be subject to extreme volatility in the short-term, as we have recently witnessed.

When faced with adversity, investors invariably panic. This results in the sale of poor performing investments and buying asset classes that have just experienced strong performance. Then inevitably, markets change and the best performing asset classes become the worst performing. We call this common flaw ‘buying high’ and ‘selling low’.

We are unaware of any evidence supporting the consistent success of professional investment managers who are able to buy low and sell high. Therefore, rather than speculating, we base our investment philosophy upon the following principles:

  • Portfolio structure determines investment performance
  • The most important investment return is an after tax return
  • Markets are efficient
  • ‘Asset Class’ investing is the most efficient and effective way to invest
  • Risk and return are related
  • Minimising fees and transaction costs is important
  • Diversification is used to reduce risk and enhance returns
  • How we spend your ‘risk budget’ is critical.

To practically implement the key tenants of our investment philosophy, we:

  • Recommend managed funds over direct stock portfolios to maximise diversification
  • Focus on low cost fund managers that have low turnover and are ‘tax aware’, to minimise unnecessary transaction costs and maximise after tax returns (including industry fund managers)
  • Do not recommend ‘active’ investment management as it generally underperforms, delivers unrewarded risk and has higher fees (Although, it varies across asset classes, on average 70% of active managers underperform their relevant benchmark index).
  • To outperform the market, we include an exposure to ‘Value’ and ‘Small’ companies in the equity component of the portfolio, as these particular types of risks generate higher expected returns compared to a pure index portfolio.

Importantly, it is not necessary to successfully time your way into and out of markets, stock pick or speculate in order to achieve a successful investment experience.

Did you know: Asset allocation determines the vast majority (approx 94%) of a diversified portfolio's (i.e. cash, bonds, property and equities) variation in returns. Market timing and stock picking only determine a small proportion.

This is a brief overview of our investment philosophy of which I can discuss with you in more detail.