Investment Philosophy

Intelligent Investing

Conventional investment wisdom suggests that smart people, working diligently, can discover which stocks are mispriced by the market. Conventional wisdom also says that these informed investors can time the market. This is what the practice of active management is all about – stock picking and market timing.

The success of stock-picking and market timing are effectively myths consistently perpetuated by those who stand to profit from them the most – Wall Street and the financial media. Unfortunately, rational voices advocating responsible investment practices receive very little attention in a world of entertainment masquerading as advice.

The basic assumption that most money managers can outperform the market is simply false – these money managers in aggregate are the market. As a result, the average active manager return before expenses cannot be higher than the market return.

Given the cost of active management, approximately three-quarters of investment managers have, and will continue over the long term, to underperform the overall market. And those who do outperform are very difficult to identify in advance, while those who fall short, fall short by more than those who do better.

As a result, active management has become a “loser’s game.” The real opportunity to achieve superior investment results lies not in attempting to outperform the market, but in establishing and adhering to an appropriate long-term investment policy that employs low-cost and broadly diversified passive investment strategies.