and measured risk management:

We are not dismissing the benefits of diversification. On the contrary, our portfolios are generally built around a core holding of Exchange Traded Funds, although we may use any financial instrument that we feel meets our objectives.

One interesting observation about MPT is the data from “Determinants of Portfolio Performance” (1986, Brinson, Hood & Beebower) showing that more than 90% of return was achieved by exposure to a given asset class, and very little return was attributed to timing or individual stock selection within the sector.

Let that sink in for a minute.

Very little return is attributed to stock selection and timing. But isn’t that what most investors are paying their manager for?

Unfortunately, yes. We have come to the conclusion that successful timing and stock selection is, most likely, a random event. Sometimes you may win, other times you lose. Rather than play this game, we construct portfolios that are based on diversification, and then we add the missing ingredient: risk management.