Investment Philosophy

“I don’t have a clue about investing, but I know it’s important.”
“My broker told me I was diversified. Why did I lose half my money in the Bear Market?”
“I’m just looking for someone I can trust.”
“I’m retiring and I don’t want to run out of money.”
… common investor comments.

Managing your own investments is a very complex and stressful job. Many people are not interested in investment management and prefer to spend their time in other pursuits. Many people choose to hire a professional to do a professional’s job.

If you have been searching for professional investment management, you have probably been overwhelmed by the variety of products and approaches that are available. Let us provide you with a method of bringing some order to the chaos. There are basically four methods or approaches to investing.

1. Playing the Market: Market Timing and Picking the “Best Investment” (Gurus)
2. Buy a Product With a Known Return (Certificate of Deposit, Fixed Annuity)
3. Buy a Product With an Unknown Return
4. Advanced Asset Class Management

If you are interested in method one, you are in the wrong place. Market timers are always looking at some indicator of past market or investor behavior to discern the future. The future cannot be accurately predicted based on past events, which makes market timing an unreliable method. It fails to account for the “risk of the unknowable.” The belief that someone can predict the future is pure foolishness. Just apply a little common sense and ask the question, “If someone really does know what the best investment will be, why would they tell you?” Playing the market is gambling, pure and simple. Therefore, you can attempt to achieve your goals either by random chance or by design. We suggest design. Leave gambling for your next trip to Vegas.

Method two is suitable for investors who need the security of a known return and no principal fluctuation. This includes Certificates of Deposit which are FDIC insured and offer a fixed rate of return if held to maturity, as well as fixed annuities where the principal and return are guaranteed based upon the claims paying ability of the issuer. Our role with an investor suited to this method is to locate and evaluate investment products and ensure that the investor understands the pros and cons. Objective, unbiased advice is critical when purchasing products because of the temptation for advisors to sell the product that is best for them (highest commissions) rather than what is best for the client.

Method three covers a wide range of products that offer the possibility of a higher return in exchange for the investor assuming the risk of an uncertain outcome. Some products even have the option of principal protection, death benefits and a host of other attractors to increase the likelihood of a product sale. As with method two, our role is to educate the client about what they are buying. If after consideration, the client wants a product based solution to their needs, we will provide the product.

Method four, Advanced Asset Class Management (AACM), is a prudent, sophisticated, academically-based process (versus product based) and is our most valuable service. AACM as the name implies, is management at the asset class level rather than management at the security or product level. We believe asset class management is rarely offered because of the complexity and the massive workload required over the life of the account.

An analogy may help explain this concept. If you were facing a surgical operation, would you be concerned about the brand of scalpel or other tools the surgeon uses? Or would you, as I, be concerned only about the surgeon’s experience, training and the procedure they planned to use? You would probably assume the tools (investment products) were adequate to successfully perform the operation (investment management). However, in investing, tremendous energy is spent worrying over which product will be the best in the coming year, rather than how to put products together into an efficient design. An academic study entitled “Determinants of Portfolio Performance” by Brinson, Beebower and Hood showed that approximately 90% of your return is controlled at the asset class management level and not at the security or product level, which is why we choose to manage at the asset class level. The asset class level is where we can provide the greatest value.

Advanced Asset Class Management as provided by Gilbert Advanced Asset Management, has three components which are described below.

Efficient by Design
We engineer portfolio designs to help meet the needs of three unique groups of investors. Our Global Growth designs are tailored for the younger, more aggressive investor who typically has many years to retirement and is not concerned about the year to year ups and downs of the market. The Global Efficient portfolios are available for many levels of risk tolerance and use the purest application of AACM. Our All Weather portfolios are an ultra defensive strategy for those seeking a strategy designed to offer maximum protection and the opportunity for a reasonable return. Within each of the three groups, we offer a range of equity/fixed income allocations appropriate for the design. Efficiency is the common thread running through all the designs. To achieve a high level of efficiency, 10 to 15 asset classes must be included in each portfolio and they must be as negatively correlated (move in opposite directions) with one another as possible. The effect of negative correlation on a portfolio is stunning and its application requires an extensive explanation. If this is starting to sound complicated, you’re right. It is complicated. Please read on.

Dynamic Reallocation
By their nature, highly efficient investment portfolios require regular maintenance to extract the value produced by the efficient design. As some investments increase in value, others will decease in value which changes the concentrations of individual investments in the portfolio. Typically, advisors tend to use an automated process to move the investments back to their original concentrations. We believe this is an opportunity to add additional value by applying intelligence rather than automation to the process. Dynamic Reallocation returns the portfolio to the original design, but with a few carefully thought out modifications. The modifications may stem from market conditions or a special client need. The bottom line, each account is individually managed to meet the needs of a diverse clientele and an ever changing world.

Selective Income Management
Have you ever heard the old joke, “How do you make money in the stock market?” The punch line is, “Buy low, sell high!” When you need to draw income from your investments, that advice is particularly important. Commonly, automated processes are used to make short work out of what should be smart work. Income is often extracted across all investments according to their weight in the portfolio, thus selling both high and low to produce an income stream. With our individualized management and large staff, we can make the smart decisions necessary to extract income from the investments that make the most sense.Managing your investments is so important, it is the only service we provide. By specializing only in investment management, we can devote tremendous resources and energy to being the best. Our investment management system is based on a 50 year old Nobel Prize winning theory called “Modern Portfolio Theory” as well as other top academic studies. The system is being continually revised using the latest academic research and actual experience. In our opinion, you deserve nothing less.