Investment Approach

The Fifth Set DisciplineTM

Key Takeaway

Consistent exposure to capital markets is necessary for wealth creation over time

Further insights

Key Takeaway

Market prices are the best estimate of a stock’s intrinsic value.  Investors are well served by acting as if current prices are correct (even if that turns out not to be the case).

Further insights

Key Takeaway

Professional money managers, on average, fail to outperform the market over time. Before you jump into individual stocks, ask what your unique edge is.

Further insights

Key Takeaway

Although the vast majority of active money managers underperform their benchmarks, a handful do manage to outperform over time. Is that outperformance a result of luck or skill?  The evidence suggests luck is the primary driver of outperformance.

Further insights

Key Takeaway

Diversification (broad market exposure) reduces the risks related to specific companies and industries leaving investors with only market risk to bear. The impact of the COVID pandemic on Disney stock vs. the broad market (chart) is a perfect example of the risk benefits provided by diversification.

Further insights

Key Takeaway

Investors often assume that the average historical return of individual stocks is similar to the average historical return of the broad stock market. In reality, most individual stocks underperform long-term market returns which are lifted by a relatively small number of stocks with exceptional returns. Investment strategies built around individual stock picking run the risk of missing out on the small number outperforming stocks. Only consistent broad market coverage ensures exposure to the best performing stocks over time.  

Further insights

Key Takeaway

While understandably alluring, successful market timing is much more difficult to achieve than one might expect.  Staying exposed to market risks through good times and bad is the surest way to capture long-term returns. 

Further insights

Key Takeaway

Academic research has identified specific security characteristics associated with higher expected returns.  Systematic investing that tilts toward these ‘factors’ enables investors to capture these higher returns.  

Further insights

Key Takeaway

The way we, as humans, are wired to behave can lead to investing mistakes. Awareness of our biases gives us the opportunity to prepare for market conditions that can be difficult to manage. A disciplined commitment to an evidence-based investment approach is the key to managing our human biases.

Further insights

Key Takeaway

The oldest adage in investing may be “buy low, sell high”, yet our emotional impulses often drive investors to do the complete opposite. By definition, the world likely looks the worst at the same time markets are at a low point and vice versa. Emotions make it difficult to do what is necessary to achieve investing success. Managing your emotions is a critical part of the investing process.

Further insights

Key Takeaway

The media is in the business of drawing attention to its content. A media company that focused on delivering content based on academically driven investment concepts likely would not stay in business for very long. When reading headlines or hearing talking heads discuss markets, keep in mind the inherent conflict of interest underlying the content.

Further insights

Key Takeaway

Focus on those things that matter, and you have control over.

What you can control:

What you cannot control:

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