Investment Leadership

The situation for the average investor has become more confusing and challenging with the creation and promotion of more expensive, complex, and speculative strategies. Simplifying portfolios and counseling clients to ignore short term noise will allow investors to achieve unique success.

Jeff Troutner, Equius Partners
January 2013
Real Clear Markets

Almost twenty years ago, I introduced Asset Class1 with these words:

Our goal is to provide short, to-the-point articles on any topic that benefits long-term investors. For guidance, we will rely on many of the principles outlined in the 1990 restatement of the Prudent Investor Rule, review objective data from a variety of experienced and reputable sources, and challenge much of the mainstream marketing hype flowing from “Wall Street” and its legions of brokers, financial planners, and money managers. We will also draw on my thirteen years of experience working for and evaluating investment managers and selling investment services as a broker with a major Wall Street firm.

In the end, this newsletter can only provide food for thought. I firmly believe that to be successful over the long-term, investors must accept the ultimate responsibility for their investment decisions. Since stock selection and market timing techniques have been shown over and over to add no value to investors, blaming brokers and money managers for failing to meet your objectives is not productive. Investors today have the information and basic “tools” to take control of their portfolios, lower their costs, and become the ultimate winners in a process that in the past favored only the financial “experts.”

With the exception that the articles haven’t always been as short as some readers of Asset Class would have preferred, our message and our approach to long-term investing has not changed. Neither, sadly, has Wall Street’s nor the financial media’s. In fact, with the creation and promotion of more expensive, complex, and speculative strategies; the experience of two severe bear markets in ten years; expanding globalization; and political dysfunction in the U.S. and Europe, the situation for the average investor has become ever more confusing and challenging.

The Equius Client Experience

My emphasis on the updated Prudent Investor Rule in that first article was very important. First, it defined prudence in a very thorough and detailed way. Yet the overriding takeaway for me was that prudence can be defined simply as “the good sense to know what risks investors, particularly trust fiduciaries, should and should not take to meet long-term objectives.” Second, it was written by non-Wall Street experts, for the most part, with significant reliance on peer- reviewed academic research that emphasized modern portfolio theory.

The result of that initial guidance and setting of basic principles has been, for Equius clients, an overall investing experience and investment portfolios that have become less confusing and challenging over time.

For example, we moved early on to the better and more consistently structured Dimensional Fund Advisors (DFA) “asset class” funds and away from most retail index funds or the new ETFs to build client portfolios,2 and we removed and rejected certain asset classes that, for various reasons, failed to improve the expected risk and return characteristics of client portfolios over time.

We also categorically reject hedge funds as an asset class, recognizing early on that they were simply highly leveraged, ultra-expensive active strategies—their most prominent feature being the likelihood of failing more spectacularly than the typical actively managed mutual fund. And while most investors manage to lose money jumping in and out of non-investments like precious metals and other commodities, to us they simply represent short-term emotional distractions with no expected future real return and no place in a well-structured portfolio.

The recent and totally predictable resurgence of tactical asset allocation (market timing) to “deal with” market, economic, and political volatility remains comic entertainment for us, even as it’s embraced by an industry partner (our primary custodian) we otherwise respect.

Simplifying portfolios, rejecting Wall Street’s and the financial media’s siren calls, and counseling our clients to ignore all the short- term noise produced by the investing traditionalists and their friends in the media have allowed Equius and our clients to achieve unique success—both financially and emotionally—over these last 20 years.

You Are an Investment Leader

One definition of a leader is a person, organization, or company that had the courage to challenge conventional wisdom in search of a better way. Once discovered, a true leader then seeks to share that knowledge to improve the lives of others. This was precisely why Equius was founded, and as a result, our clients possess knowledge, a history of positive investment experiences, and peace of mind that 80% of investors (those who still rely on active strategies) do not.

Leadership catalyzes positive change by providing others with the guidance and support they need to reach their goals. We invite you to participate in providing that leadership to your friends and family by sharing with them your positive investment experience. You can help them increase their odds of success, help them reduce anxiety and stress around investing, and free them to direct their energy and financial capital toward the experiences they value the most. The team at Equius Partners stands committed to assist you in these efforts. Our doors are always open to anyone you want to share this unique knowledge with—whether the person’s goal is to make a change in his or her portfolio or to simply gain new perspective.

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