If the Pros Can't Win, How Will You?

We provide many services to our clients. One of them is investment management. Our philosophy for implementing our investment strategy is a clear differentiator from most other financial advisors or investment professionals.


There are two main investment implementation strategies: active management or passive management. In active management, you believe that you can identify, in advance, an investment manager, who can consistently outperform his benchmark for an extended period of time. Academic research shows that this is extremely difficult to do, over a long period of time, for all asset classes, both domestically and internationally.


We believe in a passive approach, which means that we will retain an investment advisor who will purchase stocks based on their respective asset class. Academic research shows that over various time periods, this strategy outperforms “active” management, particularly when costs such as trading and taxes are included in the analysis.


Further real world evidence of this is presented in Morningstar’s “Fund Times” weekly column. In this column, Morningstar reports fund management changes. In recent issues, they have described how Vanguard and SEI (a company that selects money managers, for the various funds they manage, under the SEI name) have made significant changes to some of their largest funds.


Why is this important? This shows that companies such as Vanguard and SEI, with all of their extensive resources and research, selected money managers for their funds a number of years ago, and have now determined that those decisions were poor. The fund managers they selected vastly underperformed their respective benchmarks. After enough years of underperformance, they needed to change managers. But how can they know that the new managers will outperform their benchmarks in the future? They can’t!

Every week, Morningstar reports the numerous changes of mutual fund managers. Sometimes good managers move to other funds. In that case, future investors in that fund may purchase these funds thinking current management built a good record. But that would not be the case. In other situations, changes are made because the managers underperformed. It is a continuous revolving door, without an ability to reliably predict future sucess.


In our strategy, this is not an issue. We purchase an asset class, a set of stocks within a given criteria, such as US small stocks. Academic research shows that this type of fund will outperform most active managers, over most years. Generally, the longer the time period, the more likely it is that a passive fund will outperform most active fund managers, in each asset class.

While these concepts may be new to non-clients of our firm, we welcome the opportunity to discuss this with you further.


We focus on the big picture, your goals and how to achieve them. We want to provide our clients with clarity and a good investment experience. This important implementation aspect is critical to the long term success of our investment philosophy.