Our investment philosophy
To build and preserve wealth
Our clients have long-term objectives to build and preserve wealth. Consequently our investment philosophy, and the strategies we implement, have been developed with a long-term view.
We rely on proven investment fundamentals which endure through the full range of economic circumstances. We believe in diversification across a range of asset classes, and also within each market. We make no attempt to engage in short-term market timing, which we believe to be impossible.
Weighing risk and return
Our judgements are founded on detailed research and a scepticism born of long experience. Our research covers the spectrum from analysis of the major forces which drive investment markets, down to scrutiny of the detail of specific investment opportunities and assessment of the character of the people behind them. We have sufficient experience to know that a weighing of both risk and the opportunity for returns are essential.
We understand the need to remain within our circle of competence. Yet, having formed a view, we are prepared to back our judgement and, at times, are willing to materially depart from the consensus view. This may involve exploiting an opportunity which we believe is not widely recognised or forsaking possible profits to avoid inappropriate risks.
Our focus is not on speculative prospects but rather on investments which offer substantial underlying value, for example having real assets or the capacity to generate sustained and growing income streams.
Diversification
We believe that the flexibility of ready liquidity is an important element of most portfolios, though there are occasions where we identify merit in the inclusion of specific illiquid assets.
We recognise, and it is important that our clients understand, that absolute certainty is never possible in the world of investment. Inevitably we will make errors of judgement and markets will move in unexpected ways, at least temporarily. This reality lies behind the concept of diversification. So long as risks are spread intelligently and the majority of our judgements are sound, we will produce successful long-term outcomes for clients.
Diversification involves more than simply gaining exposure to differing market cycles. Diversification of income sources (eg rent, dividends and interest) is a method for smoothing portfolio cash flows. Further, within most markets, there is less volatility of income than of capital (eg a share may distribute steady and growing dividends even though its price might fluctuate substantially). Thus, given a reasonable portfolio size and time frame, we are able to provide clients who live on their assets with a stable and growing income stream.
Appropriate diversification can be maintained systematically through rebalancing, ie the periodic realignment of portfolios with a desired asset mix. This, allied with a focus on producing cash distributions adequate to support costs of living, protects against being forced to sell assets at a low point to meet cash flow demands.
We note that some of our clients do not require investment income. In these cases it can be reinvested to grow the portfolio or used to fund gearing or held in tax efficient structures. Nonetheless, these portfolio principles remain sound.
Sound returns
Our objective is, over the long-term of say five years or more, for our clients to achieve sound returns, well in excess of inflation. In those markets where expertise can produce greater rewards, particularly the stock market (in contrast to say cash), we believe we can achieve above average (ie above market index) long term returns for our clients. This is achieved through the identification of quality securities and/or fund managers and the careful assessment of value and price.
It can be misleading to indicate future returns. History has seen periods of unusual conditions, some of which created considerable challenges for the achievement of even modest objectives, and others which delivered exceptional rewards far beyond reasonable expectations. However, under most market conditions, over the long term, we believe a return of 5% pa above inflation, after our fees and before tax, is a realistic objective.
This statement of investment objectives is quite comprehensive. It recognises the substantial impact that inflation has on investment markets and that our clients need returns in excess of inflation if they are to grow their real wealth. Next it acknowledges that, over a reasonable timeframe, a sound investment strategy should produce adequate returns on both an absolute and a relative basis. Finally, it pointedly reflects the fact that our clients have come to us to get results.
It is important to note that this document is a statement of our underlying principles. The specific recommendations we make for any client are tailored to their own particular circumstances and objectives.