In the mid‐1990s, I began working as an equity research analyst (also known as a stock analyst) covering digital media, and later, traditional media companies. Excited to apply my analytical skill set to the challenge of stock picking, I set about understanding varied business models, created financial statement analyses, built valuation models, authored research reports, and ultimately made buy/sell/hold stock recommendations. I envisioned a career path that included becoming a senior equity research analyst and, ultimately, moving to the “buy side” to become a mutual fund or hedge fund portfolio manager. The path was clear…or was it?

As I progressed in my equity research career, a sense of unease began to creep into my mind. Maybe I was wrong about the value of the equity research process. It appeared that all the study on our industry companies, meetings with management, financial analyses, and valuation modeling, never answered the question we were supposed to be able to answer, “which stocks will outperform the market?”

I became aware of this irreconcilable observation not just in our group but in entire departments and across the industry. It was difficult to resolve. The equity research concept certainly made sense. After all, equity research should work. But it didn’t. The reality was that better understanding of companies did not translate to better stock price predictions. This epiphany naturally led to the next question, “why?” Why didn’t fundamental equity research work?

My growing unease with the traditional approach to investment research culminated when I met the woman I would eventually marry. By the time we met, she had managed to save enough to build a portfolio, but the cash was sitting idly in a bank savings account.

It was clear to me, by then, that buying a handful of stocks for my bride-to-be based on the equity research process was tempting fate. Before investing her savings, I embarked on a path of discovery that would alter my career –– and life. I began to reexamine the traditional equity-research based portfolio-construction process.

Fortunately, my academic background in engineering and finance provided me with the necessary foundation to try to understand the equity research paradox. Remarkably, the answer was there all along in my MBA finance textbooks. The explanation as to why one should not expect to add value using equity research strategies is the Efficient Market Hypothesis (EMH).

Stated briefly, the EMH, for which Professor Eugene Fama won the 2013 Nobel Prize in Economics, states that all publicly available information is quickly reflected in stock prices. As a result, efforts to consistently find ‘mispriced’ stocks should prove fruitless. In fact, numerous studies of actively managed fund performance provide empirical support for the EMH. The results of these studies make the case against active management in two steps. First, the vast majority of actively managed funds underperform their benchmarks over time. Second, the few that manage to outperform do not continue their success into future periods. Their outperformance does not persist. It is luck, not skill, that distinguishes the few active out-performers.

With the EMH as the core investment principal, further study led to a compelling new investment approach, The Fifth Set Discipline™ – an evidence-based approach to investing built on findings from academic research.

Bringing this approach to investors in a way that avoided the traditional conflicts of interest presented by most financial “advisors” was another challenge. Fifth Set chose to utilize the Registered Investment Advisor structure to offer clients a fiduciary standard of client care, a standard that places a legal requirement upon Fifth Set to always place the interests of clients ahead of the firm’s.

Founded in 2011, Fifth Set Private Wealth Management LLC offers wealth management services suitable for professional clients and future spouses alike.