About Us

We subscribe to the Modern Portfolio Theory, as developed by Nobel prize winners Harry Markowitz, Merton Miller, and William Sharpe. This theory focuses on the overall risk-reward characteristics of portfolio construction, instead of merely compiling portfolios from securities that individually have attractive risk-reward characteristics.

The method is further enhanced by comparing risk and return to the theoretical risk-free rate of return, represented by U.S. Treasury Bills, and to overall market returns. This results in the inevitable conclusion that holding a broadly diversified portfolio yields the best combination of risk and reward.

We have a recent example of the benefits of this approach. In 2006-2008, many individual financial sector stocks looked like very good investments. Applying the mathematics of diversification, however, would have revealed that the strong correlation between these stocks made an overall portfolio of financial company stocks very risky. When the market fell, those fund managers which had overloaded on financial stocks were hit the hardest.

In keeping with this philosophy, we construct a portfolio for a client using funds that represent portions of the market, instead of relying on the ability of individual mutual fund managers to “pick” winning stocks. After discussing the goals for their investments, an asset allocation strategy is developed for each client. The total portfolio is allocated in specific amounts to individual asset classes, such as large company stocks, international stocks, bonds, and so forth. As the market shifts over time, we monitor changes in the asset allocation and rebalance, or adjust, the portfolio as necessary to make sure it continues to reflect the intended strategy.

While adhering to this strategy with the core of the portfolio, we do look for opportunities in less efficient segments of the market, such as emerging markets and small company stocks, where a more active approach makes sense. We also occasionally make tactical shifts in the overall asset allocation when market conditions are appropriate.