There are literally thousands of investments available to an investor and the task of deciding which are best to achieve your objectives is not an easy one. An investment philosophy is the set of principles, beliefs or experiences that guide the construction and management of an investment portfolio.
What is our philosophy?
We have been managing investment portfolios for our clients over many and varied economic and business cycles and this has allowed us to identify and develop a philosophy to guide our decision making. There are essentially four principles that drive how we invest and manage our client portfolios.
Active investing can add value.
While there are many advantages of passive or index investing (and we do use these investments selectively) ultimately we believe that financial markets are not always efficient. These inefficiencies make it possible for active investors to generate more beneficial outcomes over time, such as enhancing returns, managing risks or simply smoothing out returns (which helps with managing sequencing risk – a key investment risk faced by many investors during different stages of their life).
Lose less to make more.
There is a perception that the highest returns over the long term come from speculating and making high returns when the financial market environment is positive. However, many of the most successful long-term investment managers have added most value by protecting on the downside when times are tough. This is a factor of the compounding of money and the fact it is much harder to make up a large loss. Thus, when we build portfolios, one of our objectives is reducing the volatility and downside potential of the portfolio across a range of different scenarios and financial market environments.
While the short-term movements of financial markets can be quite volatile and largely unpredictable, there is a very strong relationship between the price paid to purchase an asset and the long-term outcomes that an investor achieves. We adopt a flexible approach to asset allocation and how we build our portfolios to allow us to manage these risks and capitalise on the opportunities that may present.
Invest in quality.
We are not speculators and ultimately believe that the best outcomes over the long term will be delivered by investing in quality assets / investments at a fair price. Quality is a term that can be applied across various aspects of our investment process, including the investment managers we select, the types of companies in which we invest and the credit quality of the fixed-interest investments that we purchase. Quality is also aligned with the other principles of our philosophy, given that it can also help to reduce volatility and the potential for a permanent reduction in capital.