Our Investment Philosophy
Successful investment is more about understanding and managing risk than forecasting market movements. Over the long term, results depend as much on what you lose in the bad times as what you gain in the good times. Nobody can expect to consistently predict the future, but you can structure a portfolio so as to reduce the scale of probable losses in bear markets while remaining positioned to benefit from bull markets. And you can structure a portfolio so as to minimise the certain losses you will bear in the form of costs and charges. Reducing losses in bear markets can be achieved by paying attention to valuation, diversification and re-balancing.
Valuation is crucial to both risk and return; assets which are highly valued and in great demand have more scope to disappoint, whereas those which are cheaper and out of favour are likely to offer better return prospects. The ideal way to invest is regularly, where the risks around valuation and timing are reduced.
Diversification across asset classes, geographies and currencies lies at the heart of prudent risk management. This simple rule was often neglected during the run up to the Global Financial Crisis, when Irish investors built excessive exposure to property and domestic equities. The rich array of Exchange Traded Funds now available brings true diversification within the reach of all investors, large and small. Alternatives such as currencies, commodities, and absolute return strategies have a place in improving the risk/reward profile of most, if not all, portfolios.
Costs can be a major drag on investment returns, a factor often overlooked by the personal investor. Retail charging structures tend to be high, complex and opaque. But investment costs can be managed, by 'shopping around', by well-informed negotiation, and by the use of options such as passive funds/ETFs and execution-only stockbroking.
It is well established that most actively-managed funds tend to fall short of their benchmarks. We believe that a well-structured portfolio should have a significant passive element, where costs can be lower and market-index performance is guaranteed. As the late John Bogle (founder of Vanguard) once said “Don't look for the needle in the haystack. Just buy the haystack!” Actively-managed funds should be used in a highly selective manner, and only where there is conviction about the potential to add value on a net-of-fees basis.