We have clear convictions about the nature of markets and what it means for portfolio creation and management:
- Active management adds no value. We believe market timing, stock picking, manager picking, style picking, chart reading and other active management techniques fail to beat overall market returns over time.
- Markets work. We believe that markets price securities so efficiently that it is not possible to systematically earn above market returns by buying or selling based on any available information — not earning reports, not past performance, not economic data.
- Diversification is key. We believe that holding a broadly diversified portfolio representing many different asset classes reduces overall risk and allows favorable performance in a variety of market conditions.
- Costs and taxes matter. We believe that the erosion of returns caused by transaction costs, management fees expenses and tax exposure is far greater than most investors realize. Controlling costs and taxes is essential to producing desirable investment outcomes.
- Risk and return are related. We believe the exposure to risk factors, not selection of individual securities, is the primary determinant of expected return.
