PURPOSE OF INVESTING In its simplest form, investing is the pursuit of a risk premium, a higher return that one gets for taking some risk than they could get holding capital in risk-free options. It goes without saying that this premium is intended to drive a successful financial outcome tied to a ...more

PURPOSE OF INVESTING In its simplest form, investing is the pursuit of a risk premium, a higher return that one gets for taking some risk than they could get holding capital in risk-free options. It goes without saying that this premium is intended to drive a successful financial outcome tied to a financial goal. WHAT RISK IS AND ISN'T Risk is not the mere fluctuation of prices – it is the possibility of failing to achieve a financial goal. Fortunately, the latter can be mitigated. Ironically enough, acceptance of price fluctuation goes a long way towards doing just that. DIVIDEND EQUITY AS CORNERSTONE Great businesses create value for their shareholders, and the cornerstone of our investment philosophy is to build, stockpile, and deploy the value that is dividend income. And not just any dividend income, but growing income – sustainable, growing cash flows – the kind that only stellar businesses can provide. WHERE BONDS FIT IN What fixed income does for a properly allocated portfolio is help to neutralize the inherent volatility of equities, and provide cash-flowing investments with different risk characteristics to supplement the more “offense-oriented” parts of the investment strategy. Weightings will change client-to-client, but the use of bonds has served the purpose of enhancing the risk/reward profile of an investment portfolio for decades. WHY ALTERNATIVES The only “free lunch” in investing is diversification, and at the core of diversification is allocating capital to different sources of risk and return. Alternative investments are simply those that de-correlate from traditional asset classes like stocks and bonds, something much easier to talk about than do. We do not use alternatives to enhance return, and we do not even necessarily believe they “lower risk.” We believe they “change risk,” and that is an entirely, well, alternative concept. BEHAVIOR: ALWAYS AND FOREVER There is no single determinant of financial success more important than investor behavior – the avoidance of big financial mistakes. Human nature is the enemy of investor success, yet all investors are humans. The behavioral decisions one makes – often decisions to not do something – will consistently trump individual portfolio selections when it comes to achieving a financial objective.less