Our outlook

“The essence of investment management is the management of risks, not the management of returns.”

- Benjamin Graham

Our investment philosophy begins from this point. 

Yet, “risk management” is not about avoiding risks. Indeed, absent risk, there is no opportunity to earn adequate returns to achieve most goals or to sustain wealth over the longer run. We have seen remarkable volatility in the past six months, but volatility in and of itself is to be embraced, as long as the potential downsides are managed. 

Volatility risk is simply the periodic movement of the price of securities over a given time. This is the most persistent and common risk an investor must manage. Investors tend to view volatility as “good” or “bad”. Generally, investors cheer on volatility when it is positive and prices are rising. Conversely, they loathe negative volatility when prices are falling.

We take a more agnostic view and do not ascribe any “value judgment” to volatility. It is simply a feature of the markets within which we operate. Used thoughtfully and strategically, volatility becomes an indispensable tool for long-term investors. Furthermore, volatility risk is highly transitory and, if properly managed, has little impact on the long-term ability of investors to achieve their goals and objectives.

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“The intelligent investor is a realist who sells to optimists and buys from pessimists.”

- Benjamin Graham

Our goals-based portfolio management approach is an integral part of our goals-based wealth management process. We believe Stephen Covey’s advice to “begin with the end in mind” is as relevant in the world of finance as it is in so many areas of life. 

There is a market adage that bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The below chart shows what a lot of investors feel as we move through a market cycle. While we try to emphasize the stress that day-to-day market volatility can cause, we always remind our clients of our end goals and that we are investing with a specific purpose in mind.