Know the difference between a philosophy and an outlook
We know the difference between a philosophy and an outlook, and we know what we don’t know. An investment philosophy is a set of principles and beliefs that guide our decisions and behaviour. An outlook is based on trying to predict the future, something that is always uncertain and uncontrollable. We don’t believe that market movements can be consistently predicted, much less “timed”.
Our clients are working on multi-decade goals and we therefore look at multi-decade financial and market history. We look at the science and research and harness the power of the markets over our clients’ investing lifetime. We never make guesses around the short-term movements of markets. We do not attempt to ‘time the markets’ and we do not ‘chase performance’. Instead, we focus on timeless wealthbuilding principles.
Accept the future is uncertain
We accept that the future is always uncertain and we act rationally under the uncertainty. For example, we assume that the long-term outperformance of equities versus bonds will continue because the world is always growing and improving. Innovation is only captured in the price of equities (companies); it is not reflected in the price of company debt (bonds). We plan for our clients to benefit from this long-term trajectory.
We make investment decisions based on probabilities and not on possibilities, because anything is possible but investment philosophy cannot be formulated from chaos theory. We acknowledge that the day-to-day ride is bumpy but we separate the long-term signal from the short-term noise.
Planning is the root of success
We put financial planning at the heart of what we do, because our clients' portfolios are the funding medium for their plan. The portfolio is not their plan anymore than outperformance is their goal. Put another way, for us investing is not just an exercise in chasing returns.
It’s the way in which we help our clients do the things they want to do with their life. We believe that planning is the root of all financial success as it is the existence of a plan that enables us to tune-out the short-term noise and focus on the long-term.
Smart behaviour & asset allocation
Behaviour and asset allocation are the main determinants of long-term financial outcomes. Through continual behavioural coaching, education and consistent communication, we help our clients own, and continue to own (through all the peaks and troughs of the markets) the assets that will give them the greatest chance of achieving their deepest-held goals.
We acknowledge that our clients emotional wants (a desire for certainty) are often at odds with their financial needs (the return needed to achieve their goals). We also acknowledge that the best thing to do is often nothing. We help our clients do nothing when nothing is the right thing to do.
Know the difference between risk & volatility
We believe that risk is misunderstood and wrongly defined as volatility. We define risk as 1) the probability of a permanent loss of capital and 2) as the loss of purchasing power over the long-term. Volatility is simply the rising and falling of prices around a constantly rising trendline. Capital has never been permanently lost in a broadly diversified portfolio of equities held for the long-term.
The higher volatility experienced in equities is what gives us a higher return – when properly understood, it is what makes long-term equity investors rich. Volatility and return cannot be separated. The loss of purchasing power is devastating over the long-term. Whilst cash is a critical component of a financial plan we recognize that over an investing life-time cash is guaranteed to lose purchasing power, whilst equities have historically (more than) maintained purchasing power.
Giving you the edge
We believe that most of the edges that existed several decades ago have been arbitraged away by technology. We don’t think about how we can be smarter than others, we think about what we can do that others aren’t prepared to do. That edge is in behaviour. Patience and discipline are the two deep edges that are almost impossible to arbitrage away.
Simplicity is the key to performance
We believe that our role is to simplify our clients’ lives. We have watched an industry use complexity to confuse clients and to justify fees. We take the opposite approach. We know that simple does not mean easy.
In fact, when it comes to investing, simple requires more thought. We keep our clients’ portfolios simple through carefully and thoughtfully selected ETFs (exchange-traded funds), index funds and in less efficient markets, actively managed mutual funds.