What We Believe
Some general thoughts about markets, investors and portfolio management:
- Markets strive to function efficiently but rarely achieve it due to investors' cognitive and behavioral biases, imperfect information, irrationality and inattention.
- Investors should achieve better results when their decision-making emphasizes facts over forecasts, evidence more than estimates, and probability rather than predictions.
- Market inefficiencies and unexpected change create opportunities for abnormal returns.
- Wide diversification is only required when investors do not understand what they are doing.
- Most investors neglect or misapply basic principles of probability.
- Not all risks are well compensated.
- Most investors pay too much attention to maximizing gains and too little to minimizing losses.
- Large gains and small losses are the key to long term results.
- It is impossible to produce superior performance by doing the same thing as most other investors.
- Active management may provide real benefits to investors compared to passive strategies:
- Higher alpha
- Lower beta
- Higher Sharpe ratio
- Asymmetric risk profile
- Lower correlation to the rest of a portfolio