Rising Above The Noise
Some investment professionals work hard to make their work confusing. They believe they have a vested interest in creating investor confusion. They use jargon that can intimidate and make it difficult for you to understand relatively straightforward concepts.
But investing is actually not that complicated. It can be broken down into two major beliefs:
- You believe in the ability to make superior security selections, or you don’t.
- You believe in the ability to time markets, or you don’t. Let’s quickly explore which investors have which belief systems and where you should be with your own beliefs.
Exhibit 1 classifies people according to how they make investing decisions. Quadrant one is the noise quadrant. It’s composed of investors who believe in both market timing and superior investment selection. They think that they (or their favourite financial guru) can consistently uncover mispriced investments that will deliver market-beating returns. In addition, they believe it’s possible to identify the mispricing of entire market segments and predict when they will turn up or down. The reality is that the vast majority of these methods fail to even match the market, let alone beat it.
Quadrant two is the conventional wisdom quadrant. It includes most of the financial services industry. Most investment professionals have the experience to know they can’t predict broad market swings with any degree of accuracy. They know that making incorrect predictions usually means losing clients. However, they believe there are thousands of market analysts and portfolio managers with MBAs and high-tech information systems who can find undervalued securities and add value for their clients. Of course, it’s the American dream to believe that if you’re bright enough and work hard enough, you will be successful in a competitive environment.
Unfortunately, in an efficient capital market, this methodology adds no value on average. While there are ongoing debates about the efficiency of markets, most economists believe that fundamentally, capital markets work.
Quadrant three is the tactical asset allocation quadrant. Investors in this quadrant somehow believe that, even though individual securities are priced efficiently, they (and only they) can see broad mispricing in entire market sectors. They think they can add value by buying when a market is undervalued, waiting until other investors finally recognise their mistake and selling when the market is fairly valued once again. We believe that it’s inconsistent to think that individual securities are priced fairly but that the overall market, which is an aggregate of the fairly priced individual securities, is not. No prudent investors are found in this quadrant.
Quadrant four is the information quadrant. This is where most of the academic community resides, along with many institutional investors. Investors in this quadrant dispassionately research what works and then follow a rational course of action based on empirical evidence. Academic studies indicate that investments in the other three quadrants, on average, do no better than the market after fees, transactions costs and taxes. Because of their lower costs, passive investments – those in quadrant four – have higher returns on average than the other types of investments.
Our goal is to help investors make smart decisions about their money so that they are firmly in place in quadrant four. To accomplish this, we help investors move from the noise quadrant to the information quadrant. We believe this is where you should be to maximise the probability of achieving all your financial goals.
WM – Wealth Management
We believe Wealth Management is greater than the sum of its parts. Practiced together, Investment consulting, advanced planning and relationship management can address the full spectrum of your financial needs.
Affluent clients turn to Oliver Asset Management for advice on wealth preservation, wealth enhancement, tax mitigation, charitable giving and planning for the future. Our comprehensive wealth management service is based upon understanding your priorities, both now and in the years to come.
Investment Consulting
Investment consulting (IC) is the astute management of investments over time to help achieve financial goals.
It requires advisors to deeply understand their clients’ most important challenges and then to design an investment plan that takes their clients’ time horizons and tolerance for risk into account and that describes an approach that will maximise clients’ probability of achieving their goals.
It also requires advisors to monitor both their clients’ portfolios and their financial lives over time so that they can make adjustments to the investment plan as needed.
Please see our section on Our Process for more details on the key considerations
Advanced Planning
Advanced planning (AP) goes beyond investments to look at all the other aspects that are important to your financial life. We break it down into four parts: wealth enhancement, wealth transfer, wealth protection and charitable giving. In our experience, very few financial advisors offer these services.
Relationship Management
Relationship management (RM) is the final element.
True wealth managers are focused on building relationships within three groups.
The first and most obvious group is their clients. To address their clients’ needs effectively, they must foster solid, trusted relationships with them.
Second, wealth managers must manage a network of financial professionals—experts they can call in to address specific client needs. Finally, wealth managers must be able to work effectively with their clients’ other professional advisors, such as their solicitors and accountants.
The Investment Decision Matrix
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We work with successful, professional, financially astute clients and their families.
