Statement of Wealth Management Philosophy, Objectives and Style

Wealth Management

Wealth management must fit with your personal vision, dreams, life planning, financial and business goals, and coping with wealth issues.

Investment Objectives

We seek to achieve long-term, above market returns while minimizing the risk of losses using primarily a value approach. If market sentiment changes toward growth-type asset classes and sectors, we will recognize that sentiment by appropriate weighting in the portfolio. We will invest in a wide variety of equity, bond, real estate, and other asset classes on a world-wide basis. We seek to provide financial piece of mind by having matching goals with expected rates of return.

Margin of Safety

We subscribe to the Margin of Safety principle however it is defined. To us it means investing when there is a significant discount to intrinsic value, in other words, a bargain.

Modern Portfolio Theory

We employ the principles put forth by Harry Markowitz in a 1952 dissertation, which were 1) diversify using various asset classes not closely correlated with each other to minimize portfolio volatility, and 2) finding the appropriate level of risk for a given return.

Active Portfolio Management

We prefer to use mutual funds when the manager has a long-term record of exceeding the best-fit benchmark for that fund. In other words, we believe in attempting to add value by beating market performance. We only use index funds or electronic trading funds (ETFs) when there is no better alternative.

Selection of Individual Stocks or “Great Businesses”

Selection of individual stocks or “great businesses” will be based on the quality and integrity of management, the strategy and execution of it, the degree of dominance of the respective market, the franchise value, strong financial ratios, reasonableness of valuation, undervalued situations,  industry trends, timing vis-à-vis the economic cycle, and the sustainability, durability and consistency of earnings-per-share growth. Individual securities or “great businesses” will be purchased when we see they can support excess returns over long-term holding periods.

Asset Allocation

We believe in active asset allocation by identifying and over-weighting asset classes and sector investments that appear to have the best chance for market-beating returns for a given time period. Likewise, asset classes that appear to possibly under-perform the market for a given time period will be underweighted. The studies by Brinson, Singer and Beebower (1991), William Sharpe (1992), and others verify that more than 90% of the average total return can be explained by the allocation to asset classes.

Market Timing

We believe that market timing is possible, meaning that it is possible to anticipate major moves in security prices. Accordingly, we employ technical analysis tools and selected timing service subscriptions in an attempt to make timely changes in allocations between asset classes and to reduce portfolio volatility during significant market downturns.

Tax Efficiency

When possible we will choose mutual fund managers who limit the amount of turnover, as the increased costs of turnover reduce returns on a pre-tax and after-tax basis.
We will hold investments as long as there are no better performing investment that could overcome the transaction costs, including capital gain taxes.

Indexing and ETFs

We do not use  ETFs or IShares if we can still find mutual fund managers that beat their benchmarks. Indexes do not filter out the below average businesses. They are too diversified. Some ETFs tend to be cap weighted, allowing a few companies to dominate the index. Because of preannouncements of new entrants into an index resulting in run-up of the market price, an index tends to have little or no discount to intrinsic value. Small caps, emerging markets and bonds are better managed in a fund.  However, we do use ETFs or IShares in selected siutations and for short term trading opportunities.

Purchase of index-type investments may be utilized in certain situations, such as gold investments and hedging through short positions. 

Risk Tolerance

Your funds will be managed according to your comfort level and risk tolerance.  For that purpose a determination must be made as to what that risk tolerance is. You will be asked to complete a risk tolerance questionnaire.

Compensation

As a registered investment advisor, not a broker, compensation is based on a percentage of managed asset value rather than commissions. The normal fee is 1% of the net asset value per quarter in arrears on the first $2 million and 0.50% thereafter. That level of compensation is required to cover time in research, doing transactions, reporting, meetings and personal service.

There is a 10% discount for nonprofits. and free individual tax returns for individual clientele for whom I manage portfolios, up to a maximum credit of 20% of the management fee or the cost of preparing the return, whichever is less.

Related to compensation is the minimum account balance. With certain exceptions for nonprofit organizations, for present clients, and certain other situations, a minimum account balance of $200,000 yielding a minimum annual fee of $2,000 represents the desired starting point.

Custody and Brokerage

All  accounts are private and maintained at Fidelity on that basis. There are no pooled accounts. We have limited discretionary trading  authority only. We do not have access to any cash or securities in the accounts