The Investment Process

Start by building your investment compass

 Investing money well requires a logical and robust framework on which to build a lifelong investment programme.  It needs to be grounded in investment theory, supported by empirical evidence and enhanced with an insight into the behavioural traps and pitfalls that all investors face, that can and do cost them dearly. 

a)    Five lifelong principles 

  1. Have faith in capitalism and confidence in the markets 

Despite the apparent doom and gloom, the world’s economy continues to grow, year-on-year, creating wealth and return opportunities for investors.  As investors, we need to keep faith in capitalism as a robust and resilient economic system and recognise that the markets are an efficient mechanism for rewarding those who provide capital to those engaged in the pursuit of wealth creation.  

  1. Accept that risk and return go hand in hand 

One of the inescapable truths of investing is that to achieve higher returns, you have to take on more risk.  That seems logical enough, but you would be surprised just how many investors seem to think that it is possible to get high returns with low risk.  

  1. Let the markets do the heavy lifting 

Verifiable evidence suggests that trying to beat the market – through either market timing or stock picking - is a tough game, with very few long-term winners.  Our view - in line with both academia and many major institutional investors - is that it is not a game worth playing. 

Letting the markets do the heavy lifting on returns takes a great weight off your shoulders; you no longer need to worry about picking the right stock, the right manager or deciding if you should be in or out of the markets.  As one cannot control the returns of the markets, the structure of your portfolio will become key.

  1. Be patient - think long-term 

If you want to be a good investor, you have to be patient.  On your investing journey, you will spend a lot of time going backwards, recovering from the set back and then surging forward, often in short, sharp bursts of upward market movement.  You just have to stick with it.  Remember that you have to be in the markets to capture their returns.

  1. Be disciplined 

Discipline comes in many forms: sticking to the principles above; constructing well-researched and tested portfolios that should weather all investment seasons relatively well; not chasing investments that have gone up dramatically, but sticking with the logical reasons for not owning them in the first place; and the discipline to not become despondent about short-term, unimportant market noise, and to focus on your long-term strategy.

b)   Five effective investment practices

Having established a sensible set of investing principles, let’s turn our attention to five key investment practices that the evidence and theory suggest we should focus on.  

  1. Build a well-structured portfolio

Successful investing is all about taking on well-understood risks that deliver a positive return expectation – these are carefully selected market risks associated with ownership and lending.  It avoids taking on risks that add little (or worse) to the portfolio, such as illiquidity, poor judgemental portfolio manager performance, and opaque and complex product structures.

  1. Use diversification to manage an uncertain future

Not putting all of your eggs in one basket is an intuitive and valuable concept.  Owning a diversified portfolio brings its own challenge.  Inevitably there will always be one or two parts of the portfolio that are doing well, but one or two that are not.  The patient and disciplined investor knows that there is little point in knee-jerk responses, and that this is simply the way that markets are.  The impatient and ill-disciplined will seek to change their strategy.  More fool them.

  1. Avoid cost leakage from your portfolio

Costs eat away at the market returns that you should be gathering for yourself.  Small differences in costs will compound into large differences over extended periods of time.  Investment industry costs are high, particularly those related to judgemental (active) managers.  The costs of investing are more than simply the annual management charges (AMC) charged by the fund manager.  Other fund related costs can also be offset against the fund’s performance which roll up into the ongoing charges figure (OCF).  Yet that is not all.  When a manager buys and sells equities or bonds they incur transaction costs, which eat further into returns. 

  1. Control your emotions using a systematic, disciplined approach

Evidence of wealth destroying, emotion-driven decision making is plentiful, as impatient and ill-disciplined investors have a propensity to chase fund managers, and markets, that have previously performed well, and sell poorly performing investments.  Buy-high, sell-low is not a good investment strategy. 

Recognising that both investors and advisers suffer from a range of behavioural biases that are more likely than not to result in the erosion of wealth, we believe that the design of a disciplined, systematic and understandable investment process, and its on-going implementation, is central to your success as an investor, reducing this ‘behaviour gap’ as the industry calls it.  

  1. Manage risks carefully across time

Our approach to investing positions us as risk managers, rather than performance managers as advisers have traditionally been.  It may sound like a subtle distinction, but focusing on managing risks is likely to avoid being blinded by returns, perhaps from unseen risks.  We therefore place a lot of emphasis on managing the risks in your portfolio.  Our risk management programme can be divided into three key areas:

  • Rebalancing your portfolio back to its original structure
  • Reviewing the best-in-class fund choice
  • Challenging and refining our approach

We are confident that our approach will provide you with every chance of having a successful investment experience.  We cannot guarantee what returns the markets will deliver in the future, but we can guarantee that you will capture most of what is available through our systematically managed, best-in-class funds. 

By owning a well-diversified portfolio for all seasons, having faith in capitalism, allowing the markets to do the heavy lifting, being patient and remaining disciplined, you give yourself – with our continued help and guidance – every chance of success.


View our planning process

What our clients say...

 "Mark has been a trusted and valued financial planner for many years.  I particularly like that he knows me well, and tailors the service and advice around who I am and what my goals and interests are. 

It's about my life, and...

Dr N A, Surrey (February 2024)

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