Our Approach to Investment

Investment is as much art as it is science, since it involves working with the future, so at this stage we might be tempted to wax lyrical about out Investment Committee, their years of experience in advising clients or managing money, how we look for undervalued companies or markets or the tools we use to assess managers and our rigorous buy/sell processes; but we won’t.

If you are looking for that sort of active management of shares and other assets, looking to outperform markets and regularly trading to try and exploit perceived value anomalies then, as part of an overall financial planning exercise, we can help you to find an investment manager who would manage investments the way that you want them to. We focus on the planning and they provide you with the style of investment management that you believe you need.

However, numerous studies over the years have concluded that most active funds will underperform their respective market index. The latest A J Bell Manager vs Machine study showed that only 32% of actively managed equity funds outperformed their passive equivalent over 10 years for example and where they did, they generally had lower than average charges.  More than just that, in the case of the FCA Asset Management Market Study in 2016, it appears that underperformance is more likely to repeat than outperformance. 

So we don’t believe that an adviser firm can do what large investment firms employing thousands of people seemingly cannot, and our approach to investment where required in a financial plan is different.

What we believe is:

• Diversification improves returns and reduces volatility. It’s not particularly a case of what you diversify into being important but simply that diversifying gives a benefit; it’s the only “free lunch” in investing;
• Control what you can control. Investment charges matter; they matter every year; that they matter compounds; compound a lower cost for long enough and a small annual difference becomes a big eventual difference;
• Buy the market. Given how much evidence there is of investment managers being unable to consistently beat the market, buy the market unless there is a good reason why you can’t;
• If someone talks about a market being overvalued or undervalued ask them what determines true value. Invariably what they mean is “we bet it will go down” or “we bet it will go up”. There is no absolute, universally agreed “value” to any company, investment or market, which is why investing works;
• You can set reasonable assumptions for the long term but nobody can predict what an investment or market will do tomorrow, next week, next month or next year, not even whether it will go up or down or stay the same;
• Last year’s great thing may well be next year’s disaster. You can see last year very easily but next year is a closed book, so don’t chase last year expecting next year to be the same;
• Volatility is not inherently bad. If an investment couldn’t go down then it wouldn’t go up. Volatility is simply part of investing and so when an investment goes down that’s probably just it doing what it is supposed to do;
• Nobody can tell you that now is a good time or a bad time to invest, unless they’ve found a way to predict what will happen tomorrow, next week, next month or next year;

So what we do is use as much information as there is available, and there is a lot of information produced by far cleverer people than us, to set reasonable assumptions on what different types of investment might do in relation to inflation over the longer term (10+ years). Then we work with you and your plan to come up with a mix of different investments that over that longer term should generate the returns required to make your plan work. Then we monitor the plan and the investments, rebalance when necessary and make changes only if really necessary. It isn’t particularly exciting or sexy but so often doing nothing is both the best thing and the hardest thing to do.