Why is this so?

There are two primary reasons for this.

  1. Most people do not construct investment portfolios on the basis of the known sources of investment return and investment risk.  Instead, most investment portfolios are constructed on the basis of predicting the future and choosing the last best investment. 
  2. Most people don’t measure how much risk is in their investment portfolio.  If you don’t know how much risk you are taking, then you can’t manage it.  Managing risk is the key to investment success. 

Evidence from studies conducted in many Universities has found that the market timing decisions of investment managers (whether to be in or out of the market) accounted for 2% of the variance in returns, the stock selection decisions (which shares to buy or sell) accounted for 4% of the variance in returns and the remaining 94% of the variance in returns came from the asset allocation decisions (how much is in different classes of asset). 

It is interesting to observe that the global investment industry spends most of its time, money and energy in market timing and stock selection knowing that this only accounts for 6% of the variance in returns.  The logical approach is to accept that nobody can predict the future and spending most of your time on the decisions that are proven to contribute the least to the investment return, does not make sense.   Better to be expert at asset allocation because this is where the most variance in return is produced.

Based on empirical evidence of the source of investment return and investment risk, I have constructed a series of investment portfolios that provide consistent returns that are generally above the market rate of return commensurate with the amount of designed risk in the portfolios.  The credit risk (the risk that capital or income due will not be recovered) in these portfolios is very low.

Not one of my clients lost a cent in the Global Financial Crisis in 2008.

Investment Principles

To understand how I am able to do this, look at the following document that explains the principles that I employ.

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