My investment philosophy is academicbased, grounded in Modern Portfolio Theory and strongly influenced by diversification strategies developed by Nobel Prize winning financial economists
and is centered on the following principles:
Markets are highly efficient: Financial markets discover and distribute financial information so quickly that it is impossible, over any statistically relevant period of time, for active managers to consistently outperform the overall market.
Costs and taxes matter: The high costs of active management make it almost impossible to outperform indexed investment strategies consistently. Over time, a diversified portfolio of indexed funds will, in the aggregate, generally produce a yearly after-tax return measurably greater than that of a corresponding actively managed portfolio.
Past performance has no predictive value: While past performance is the guideline most often used by the active investment community in selling future performance, most available data not only shows that past performance is of no value in selecting superior performing investments in the future, but also concludes that above average performance in the past often turns into below average performance in the future.
Asset allocation counts: The asset allocation decision (the amount we invest in stocks, bonds and cash) is the most important factor determining investment return (estimated to account for as much as 94% of variations in portfolio performance).
Diversification is the key: Effective diversification strategies serve to reduce the risk in a portfolio without sacrificing the portfolios long-term expected return.
Risk and return are related: Investors who focus on the possibility of earning over-the-top returns must be prepared to accept the consequences of assuming excessive risk. In the short run, in particular, excessive volatility can be the investors worst enemy (remember how the unforgiving math of the market works: down 50% means up 100% just to get back to even).
Passive/index funds allow investors the opportunity to most effectively maximize their assets through a low cost, tax efficient, market return investment strategy.