Our investment approach is based on more than eighty years of market data as well as concepts based on Nobel Prize winning financial, economic & academic theory, from the likes of Harvard, Stanford, University of Chicago and Wharton. These concepts discredit the myth that active management can consistently beat the market. Instead, their research supports that a globally diversified, low-cost portfolio maximizes returns.
Louis Bachelier in his thesis, “The Theory of Speculation,” set forth his revolutionary conclusion that “there is no useful information contained in historical price movements of securities.” MIT professor of Economics Paul Samuelson, University of Chicago professor Eugene Fama, Princeton Professor of Economics Burton Malkiel, Kenneth French, Rex Sinquefield, Harry Markowitz and others have expanded on Bachelier’s work asserting that stock price movements react to new information and therefore are random and unpredictable. In Fama’s book Random Walks in Stock Market Prices, said “In [a free] market at any point in time the actual price of a security will be a good estimate of its intrinsic value.” What that means is that all the knowable and predictable information is already factored into the price of a security. It is only new news and information that changes the price of a security. Because no one can predict what the news will be it is a gamble to try and pick stocks and or time the market. Eugene Fama has coined the phrase “Efficient Market.”
Our investment philosophy and portfolios are built with the same belief as these academics. In summary:
- All available information is factored into the current price of a security.
- Only new and unknowable information and events change pricing.
- The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.
- A globally diversified portfolio with low-costs is the best way to maximize returns.
To start the process in setting up your own personal globally diversified portfolio click here.