Our Investment Philosophy
A disciplined, evidence-based approach to building and preserving wealth.
Our philosophy rests on four core beliefs and the strategies that follow from them — trusting the efficiency of markets, guarding against behavioral biases, diversifying across risk factors, and controlling costs and taxes.
Markets do a good job of fairly pricing information.
We believe that, in the aggregate, markets do a good job of fairly pricing all available information and investors’ expectations about publicly traded securities. Numerous academic studies support the notion that capital markets are highly competitive, and that information is incorporated into asset prices such that prices reflect “fair value.”
Built on Modern Portfolio Theory.
Our investment strategy is based on the principles of Modern Portfolio Theory (MPT), a Nobel Prize–winning model. MPT provides for a passive, long-term buy-and-hold strategy implemented through globally diversified portfolios. Portfolios are periodically rebalanced to maintain agreed-upon asset allocations.
Passive
Not market timing
Long-term buy-and-hold
Held over years, not quarters
Globally diversified
Across regions & asset classes
Periodically rebalanced
To maintain target allocations
Behavioral biases separate the individual from the market.
We believe that at the individual investor level, behavioral biases distinguish individual investors from the collective rational decision-makers that traditional finance assumes. Emotion and deeply ingrained biases influence individual investor decisions, causing them to behave in unpredictable or irrational ways.
Acknowledge and adapt to behavioral biases.
By understanding, acknowledging, and incorporating behavioral biases in our investment decision-making, we can improve our clients’ investment outcomes. It begins by acknowledging the full range of people’s normal wants and their benefits—utilitarian, expressive, and emotional. We distinguish normal wants from errors and offer guidance on moderating or adapting to the biases, on the way to satisfying your normal wants. A combination of behavioral and traditional finance leads to superior results.
“Enhanced diversification” expands opportunity and manages risk.
We believe in ‘enhanced diversification.’ Enhanced diversification expands the number of asset classes and strategies used to create a portfolio by including alternative investments and real assets, in addition to traditional stocks and bonds. The addition of alternative investments provides an entire gamut of return-enhancing and risk-reducing strategies. We refer to this third dimension as the “Risk Managed” segment, that augments the client’s growth and income components in an overall asset allocation framework.
Diversify across risk factors, not just asset classes.
We believe in enhanced diversification because it is not possible to consistently predict which risk factors will outperform during different economic environments. Therefore, we attempt to diversify portfolios across risk factor exposures in a way that provides approximately equal exposure to the market’s different sources of risk, or we choose an allocation that considers our client’s risk-based needs.
Taxes, inflation, and investment expenses matter immensely.
We believe that taxes, inflation, and investment expenses matter immensely and are the biggest drag on our clients’ long-term wealth accumulation. We are committed to eliminating unnecessary investment costs and to identifying tax-saving strategies while locating assets in tax-efficient ways to improve investment outcomes.
Ultra-low-cost, tax-efficient implementation.
We are always assessing ways to reduce costs, improve execution and deliver greater value for our clients. We aim to ensure that overall cost is balanced with overall benefit, bearing in mind that transaction costs reduce the value of funds and therefore require diligent oversight. We primarily use ultra-low-cost, low-maintenance ETF model portfolios.
Trust efficient markets. Acknowledge behavior. Diversify across risk factors. Control costs and taxes.
The Cognis Philosophy
Want to see this philosophy applied to your portfolio?
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