Our edge lies in our adherence to our investment philosophy and process. We are not necessarily smarter than the market, but our philosophy and process are designed to be smarter than most other investors. These are grounded in well-researched, time-tested, sensible principles. And we are more emotionally objective and disciplined than most, so it helps us stick to that .
Long-term horizon: 5-10 year horizon
Performance-based Fee
Manager Alignment/ personal investment: we believe in aligning the investors’ interests with that of the investment manager. Therefore, we charge a minimal fixed management fee, used mostly to defray administrative expenses. The bulk of our fee will be calculated with a reasonable performance-based structure. We also believe in investing alongside with our investors in our funds, to demonstrates the conviction in our investment process.
Disciplined/ process-oriented: nor performance-chasing. Focus on the process and not the (short-term) outcome. Our process strives to remove the fallible human element from investments. We adhere to prescribed methods based on long-term sound academic research. We adjust our strategy based on predetermined formulas and settings.
Low cost: index funds; favor simplicity; low fixed fee (as described above)
Low activity: favor low turnover
No conflict of interest: not broker-dealer; no sales incentive
Anti-marketing
Post-modern portfolio theory: beyong traditional MPT mean-variance framework. Academics and investment industry practitioners acknowledge Modern Portfolio Theory and the concomitant Efficient Frontier as an elegant and powerful theory. They also realize that there exists a gap that separates the theory from market reality. For instance, MPT assumes all investors are rational, and will follow this mean-variance optimization approach. As we all know, not only is the rationality assumption tenuous, but it is obvious that investors do not all have the ability to calculate their optimal returns and risks.
At Valedictory, we utilize many of the concepts underlying MPT– diversification, risk-reduction, efficient portfolios– while building upon where Markowitz’s theory leaves off. We construct investment portfolios that reflect the basic tenets of MPT while supplementing with our own theories where MPT lacks robust connections with how real securities markets behave. We believe alpha (outperformance of a passive index) exists, because there are structural characteristics in the markets that allow superior active managers to garner excess returns. We also believe their are procedural characteristics of our investment process that allows us to garner additional excess returns. Our belief is based on an understanding of markets and investments, the intuitive nature of our philosophy (“this makes sense”), and confirmation by almost ten years of successful money management with our method. Furthermore, our approach is substantiated by its similarity to the asset allocation approach utilized by many multi-billion dollar investment organizations such as the largest endowment and pension funds– organizations that have the money, resources, and expertise to invest optimally.