Every individual and situation is unique that is why we work hand in glove with our clients to integrate our investment philosophy with their own.
The two dominant principals in economics, Economic Theory from the late 19th century and the Efficient Market Hypothesis from the 20th century, argue that the current price is "right" because it reflects all available data made to all buyers. Although plausible enough to win Nobel Prizes, we know both anecdotally and from rigorous academic research that these theories don't accurately describe the markets as they actually exist. People, and their machines, make trades (and mistakes) for a variety of personal reasons including many that are repeated over and again en masse. For example, reacting to sunk costs, taking additional risk to "break even" or when "playing with house money" or simple overconfidence.
In general, investors are extremely myopic and loss averse. Investors are human and need a commitment strategy to protect themselves from their own whims.
There are two predominant market investment strategies that take advantage of human investing (mis)behavior. One is Low volatility and the other is momentum investing.
low volatility
The market goes up and down. How high a stock goes up or how low it sinks is a measure of volatility. Over time, stocks that have less extreme up and down swings outperform the market as a whole. These are typically companies with long histories of stable economic growth.
Momentum
Stock prices, like prices of other goods, move in and out of trends and favor. The more demand for a particular stock the higher the price is pushed. As a result, prices can be nudged much higher than their underlying intrinsic value. Secondly, price trends often last much longer than people anticipate.
Solutions
In order to keep clients properly diversified and mitigate risk, we continuously monitor macroeconomic developments and trends to discover opportunities in many major asset classes. Among them:
- US stocks
- International stocks
- Emerging market stocks
- Exchange Traded Funds
- US bonds
- Commercial real estate (ETFs)
- Commodities (ETFs)