When using equity mutual funds, our investment philosophy is based upon an academic approach to investment management that draws on statistical analysis and financial economics rather than Wall Street marketing hype.

Our investment philosophy consists of four essential components:

Investors inherently avoid risk.

Investors are often more concerned with risk than reward. This is why we design every equity portfolio around each client’s risk tolerance.

Security markets are efficient and incorporate all publicly available information.

The “Efficient Market Hypothesis” states that prices accurately and quickly reflect values and information. This implies that active fund managers cannot expect to consistently beat the market by picking individual securities or by “timing the market.” Academic studies show that professional investment managers do not achieve better risk-adjusted returns than  the market as a whole. This is primarily due to the expenses and taxes incurred with active management.

The Three-Factor Model is relevant.

In 1992, University of Chicago economists Eugene Fama and Kenneth French published a paper pointing out that portfolio returns are influenced by three factors. Their Fama French Three-Factor Model maintains that a portfolio’s expected return increases not only as a result of increasing the allocation to stocks in general, but also as a result of increasing the allocation to small-cap stocks and/or value stocks.

Diversification is essential.

Diversification is the most essential tool available to our investors. It enables us to capture broad market forces while reducing the excess, uncompensated risk arising in individual stocks.

We achieve these goals by primarily investing in a diversified selection of low cost, no-load mutual funds from Dimensional Fund Advisors (DFA). We may occasionally use other no-load funds and index ETFs if DFA does not have any funds in a particular asset class.

See our website page Investment Management to learn details about our investment philosophy and strategy for investing in equities.