Phone: 609 620-1770
Investment Philosophy of Weingarten Associates
What is the best way to invest? There are three broad approaches that one can consider when choosing how to invest their money:
- Conventional Management
- Evidence-Based Investing
Conventional management attempts to identify mispricing in securities and often relies on forecasting to select ‘undervalued’ securities or time markets. The problem with this ‘active’ approach is that it generates higher expenses, trading costs and unnecessary risks. Even worse, the evidence is overwhelming that this is a losing strategy. In just one recent study it was found that only 19% of equity mutual funds were able to beat their benchmark when evaluated over a 10 year period ending December 31, 2013. Studies such as these have been done for the past few decades and this is consistent with previous research. By the way, the case for bonds was even worse: only 15% of mutual funds outperformed comparable benchmarks during this time period.
Indexing is one alternative that is gaining in prominence among investors in the past few decades as the research on active management becomes clearer. Index funds rely on a commercial index to determine strategy. Indexing attempts to match index performance, restricting which securities to hold and when to trade. It also prioritizes low tracking error over higher expected returns. While indexing is fairly low-cost, your investments can drift from their original stated asset class since commercial indexes are rebalanced quite infrequently throughout the year. Indexing is certainly a better approach to the traditional active approach, but there is a better way.
An evidence-based approach to investing is the one that we prefer. Through rigorous academic research this approach is able to gain insight into various markets. Portfolios are structured along dimensions of expected returns. These dimensions include the well-accepted idea that stocks provide higher returns than bonds; that small-cap stocks provide higher returns than large-cap stocks; and that value stocks provide better returns than growth stocks. We favor the portfolios of institutional fund manager Dimensional Fund Advisors to implement this evidence-based approach. Their portfolios utilize the research of some of the best academic minds of our time including Professor Eugene Fama who is a 2013 Nobel laureate in economic sciences.
Finally, we think it is important to focus on the aspects of investment management that can be controlled:
- Advance with science
- Let markets work for you
- Consider expenses and turnover
- Diversify and rebalance
- Stay disciplined
To learn more about having a successful investment experience, please contact us at 609-620-1770.