Your Future, Our Foundation

Broad & Diversified

We believe, and numerous studies have shown, that asset allocation accounts for the majority of the variation in portfolio returns over time. We therefore draw from a broad range of asset classes and investments to meet varying levels of risk and return. Specifically, we tailor your asset allocation and investments to your risk tolerance, income and liquidity needs, time horizon and expected returns. Below is a summary of our thinking and philosophy on how we manage different asset classes to address the needs of our clients.

Fixed Income Management

In constructing client portfolios, we choose securities from sectors and geographies with the most attractive relative valuations, and securities that are structured to coincide with the client's liquidity needs and income requirements. We remain cognizant that many fixed income securities offer a predictable source of income, are highly liquid and can be an effective vehicle for capital preservation. As part of an overall asset allocation strategy, fixed income securities serve as a buffer against the volatility of other types of assets.

Our firm has its roots in fixed income investing. When we were founded in the mid-1980s, U.S.government bonds were paying 8 percent, municipal bonds were paying more than 6 percent  and CDs were paying more than 10 percent. For most investors, these returns satisfied their risk-and-return needs,and there was little need to look elsewhere.

Taxable Bonds - Over the years, as rates fell dramatically, our capabilities expanded to include corporate bonds as well as developed and emerging market international bonds. The global bond market offers a compelling investment opportunity while providing further diversification within a portfolio. For example, the right international bonds can offer protection and even profits if interest rates rise in the United States and the U.S. dollar correspondingly falls. In the past, the United States dominated the global bond market, and markets outside the United States were relatively small and inefficient. By spreading fixed income investments among countries at different stages of the economic and interest-rate cycle, investors can increase diversification and reduce the likelihood that portfolio assets will all move in tandem. Today, non-U.S. bonds account for more than half of the global fixed income market.

Municipal Bonds - In general, anyone considering a municipal bond investment is not looking to get rich but rather to stay rich. Thus our focus is on high-quality investment grade municipal bonds, often limited to general obligations and revenues from essential services. We understand that the majority of the investment return will come from interest payments on the bonds. Therefore we typically structure portfolios around current return rather than a future return dependent upon guessing which way interest rates will move over the short term.  That said, we do search for value in states, municipalities and revenue sources that we believe are currently out of favor because of sentiment and emotion rather than long-term fundamental problems.  We also study the yield curve (the intersections of interest rates and maturity) to determine where we can achieve the biggest bang for the buck. For example, if we determine a 10-year bond can offer 90 percent of the return and 40 percent of the volatility of a 20-year bond, we may emphasize that risk-return option.

Equity Management

When it comes to investing in equities, we keep an open mind. We will look for opportunities wherever they can be found. We do not believe in limiting ourselves to "style boxes." And we do not find it profitable for our clients to label ourselves as value or growth managers: Doesn't everyone want to get a great deal on an asset that is going to grow in value?

We are investors, not speculators.  Investors believe that over the long run security prices tend to reflect fundamental developments involving the underlying businesses. Speculators (e.g., momentum investors), by contrast, buy and sell securities based on whether they believe those securities will next rise or fall in price. Their judgment regarding future price movements is based, not on fundamentals, but on a prediction of the behavior of others. It does not make sense to us to buy a security after its price has gone up just because its price went up. To us, a bargain is when, for example, we can buy a $1 worth of goods for $0.90, not $1.10.

We believe you worked hard for your money and we should work hard to preserve it. Warren Buffett is fond of saying that the first rule of investing is "Don't lose money" and the second rule is "Never forget the first rule." Sounds good to us.

The key to our strategy and philosophy is to understand the unpredictability of the short-term cyclical and emotional nature of the market and the predictability of the longer term trend of reversion to the mean. To illustrate, Benjamin Graham introduced the wonderful parable of Mr. Market, a manic-depressive fellow who often "lets his enthusiasm or his fears run away with him." Rational investors do not look to the market for guidance, only opportunities. The "Market" is nothing more than the product of the collective action of thousands of buyers and sellers who themselves are not always motivated by investment fundamentals. Emotional investors and speculators often lose money; investors who take advantage of Mr. Market's periodic irrationality have a good chance of enjoying long-term success.

To profit from these swings in the market requires, in our opinion, an understanding that asset values eventually revert to an average or equilibrium value. If an asset's price is above its equilibrium value, the presumption of mean reversion is that the asset's price will eventually decline to its equilibrium value. Similarly, if the price is below its equilibrium value, the presumption is that the asset's price will eventually rise to its equilibrium value. Think of it this way, for example, if a business is normally worth about 16 times its earnings, then at 25 times it may make sense to sell, but at 10 times, it make sense to buy.  Our job is to figure out which securities or sectors are above or below the line and then find the best manager in the sector that is current "below the line" and invest with them to execute that strategy.

Alternative Investment Management

Most investors are familiar with traditional investments where an investor will purchase a stock or a bond on the expectation that the asset's value will rise. Traditional managers are usually evaluated on relative performance; their performance is measured against a selected benchmark return, such as the S&P 500or the rate on treasury bills. In a down market, traditional investors are rewarded for losing less than the benchmark or less than their competitors.

Alternative investing involves managers who typically seek to generate an absolute return, independent of the direction of the overall stock and bond markets. This return is accomplished either through active hedging of stock and bond investments, by investing in carefully researched event-driven situations orby investing in inefficient areas where experienced competition is limited. These investments include distressed investments, private equity, venture capital, real estate, long/short equity and debt strategies, among others.

Alternative investments often have a low correlation to traditional market indices. Therefore, balancing investments in traditional asset classes with alternative investments can enhance returns, reduce volatility and provide diversification to an investor's overall portfolio.

We diversify with alternative investments, carefully evaluating and monitoring the following alternative investments:  real estate investment trusts, private real estate, private equity, hedge funds and commodities.To mitigate risk associated with alternative investments, we recommend significant diversification of holdings for our clients.