Research & Education

Research and analysis are in my DNA and I enjoy sharing my perspectives with clients. I do not rely solely on academic theory or rules of thumb; I use intuitive models, real data, and historical evidence to guide my due diligence.

I provide research on investment strategy and construct educational seminars customized to the needs of your family or organization. Please read below to find out how I can help improve your investment process.

Research

Science is simply common sense at its best, that is, rigidly accurate in observation, and merciless to fallacy in logic.
- Thomas Henry Huxley

My research spans the spectrum of the investment process (e.g., investment policy, defining risk and risk profile, asset allocation, choosing passive versus active, security selection, etc). I find that many investment ideas, rules of thumb, and opportunities sound attractive and eminently sensible. In my experience, however, many break down under deeper scrutiny. I follow a more disciplined, objective approach to investing and take nothing for granted. I run the numbers to constantly test and improve my investment models.

Whether you would like to read research I have written or request bespoke research for a specific investment topic, you will appreciate my refreshing perspective and rigorous analysis.

My Research Articles

Education

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.
- Maimonides

While I am happy to sit by your side guide you through the investment process in an advisory role or manage investments directly on your behalf, I can also construct and implement educational forums catering to the structure and goals of your family or organization. I can address all facets of the investment process. Whether you are starting from scratch (e.g., setting goals, establishing a risk profile, formulating investment policy) or you are have been investing for years, I stand ready to help. Below I highlight three examples where I might be able to help you or your organization improve its investment process:

While institutions such as pensions and insurers must comply with regulations dictating how they invest their funds with third party managers, family offices typically have more flexibility. One area where I identified fertile ground for educating clients was on internalizing the management of core equity portfolios. Given that core equity allocations generally incur less turn-over, the work involved is typically more cerebral than physical. As such, it provides a great opportunity for family offices to simultaneously reduce the fees they pay to external managers while improving their human capital and investment performance.

"Risk is not knowing what you're doing." - Warren Buffett

Most advisors define risk as volatility. Mathematically, this is the standard deviation of returns. Intuitively, this indicates how squiggly the lines are on a chart. Based on this definition, they proceed to ask clients about their risk tolerance. I find this definition of risk academically elegant but woefully inadequate.

I break risk down into two components. The first is strategic risk - making bad decisions or choices with regards to investment or consumption. Some examples:

  • Assuming investment returns will be too high or consuming too much
  • Getting nervous during turbulent periods and selling (when prices and valuations are depressed)
  • Getting too confident during a bull market and increasing allocations to stocks (when prices have appreciated and valuations are high)

The second component is investment risk. I break investment risk into two sub-components: fundamentals and valuations. Mathematically, one might think of the value or price of their investments as: P = F x P/F where F denotes some fundamental quantity (e.g., earnings or book value). To minimize the risk to the value of your portfolio, you should minimize the risk of these two variable for each holding in your portfolio. For the fundamentals (let's use earnings in this case), I choose high quality investments with robust and growing earnings. For valuations, I make sure I only purchase and own these quality companies at reasonable or dear valuations. In other words, I do not overpay for investments. Coca Cola is a great example. It is one of the highest quality companies around. However, I would avoid purchasing or owning it when valuations were high such as during the dot-com bubble. Interestingly, Coke got caught up in the mania and was trading at 50-60 times earnings.

The flip side to managing risk in this way is that it also targets higher returns. Indeed, this approach weeds out poor investments and gives investors two ways to achieve higher returns - growing fundamentals and higher valuations.

Diversification is protection against ignorance. It makes little sense if you know what you are doing. - Warren Buffett

In addition to managing risk for each holding, it is also sensible to diversify one's portfolio. I believe high quality portfolios should be comprised of approximately 25-75 holdings. Diversifying beyond these levels can lead to what Peter Lynch called diworsification. His point was that over-diversifying can detract from performance as one must lower the bar (for quality and/or valuation) in order to increase the number of holdings.

The standard recipe many advisors follow to define risk as volatility and prescribe 60/40 portfolios (i.e., 60% allocation to equities and 40% to bonds). In practice, risk is not just a mathematical formula and this allocation approach will systematically constrain long term returns.

Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray. - Warren Buffett (Berkshire 2014 letter to shareholders)