Investment Philosophy

We create an investment strategy tailored to your needs and desires with a set of guiding principles which are proven and solid.

Here they are.

Portfolio Perspective

Assets should be evaluated in the context of their impact on the overall investment portfolio.

Active and Passive Management

We believe in low-cost, consistent exposure to efficient markets.  We also believe in smart money and paying for active management in less efficient markets.

Market Timing

Most investments should have entrance and exit strategies.

Appropriate Diversification

Over-diversify and you risk paying too much for index returns, diversify too little and you risk too much.

Pretty straightforward, right? We do the hard work for you.

If you want to know more, just keep reading. You’ll find the pros and cons of basic investment strategies and our take on them along with additional resources to explore.

Portfolio Perspective

“A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.”

Harry Markowitz (1959), Professor at the University of California, San Diego, Recipient of the Nobel Prize in Economic Sciences
  • Harry

  • Individual assets should be evaluated in the context of their impact on the overall investment portfolio, not as standalone investments. The goal of the portfolio perspective is to measure, control, and efficiently allocate risk. Progress toward this goal is made by judging an investment not just by its own merit, but the interrelationship of the investment with the rest of the portfolio.

    Further reading

Active and Passive

“We incorporate the merits of both sides to this argument…”


Actively managing a portfolio versus indexing the portfolio to benchmarks at the lowest cost possible is a longstanding debate in the business of investment management. Proponents of active management emphasize the ability to add value; proponents of indexing emphasize exposure to market indexes at the lowest cost possible.

Our preferred approach for is somewhere in the middle.reflection-in-pier-70vSquare2


We think it is important to pay attention to the efficiency of the market or asset class under consideration. We understand the merits of both sides to this argument and assert that it makes sense to index highly efficient markets with low cost solutions (ETFs) and to hire managers (mutual funds) in less efficient markets such as small company stocks and emerging market company stocks.

Investment advisories who preach indexing will tell you that you cannot afford active management. What is true: successful managers tend to have higher investment minimums, charge higher fees, and generally have decreasing returns to scale. It pays to be selective with active managers. UK based Barclays does great work in the area of manager research and selection and we have modeled our process after theirs.

Talk about smart money.

One of the most successful hedge funds in history started in San Francisco’s East Bay. I had the pleasure of sitting down with one of its founders at a recent trading conference. His career is evidence that it is possible for smart guys to outperform markets. He is a PhD mathematician who co founded a hedge fund that returned an average 39% per year return, net of fees, over a 17 year period. Their consistency allows them to charge fees in excess of typical hedge fund fare of 2% of assets and 20% of the upside, rather, they command a whopping 5% of assets and 44% of the upside.

No, they are not open to new investors.

Further reading

Market Timing

Within limitations, the future can be foreseen. The present is always tending toward the future and there are always in existing conditions signals of danger or encouragement for those who read with care.”

Charles Dow, “the Father of Technical Analysis”, co-founder and editor of the Wall Street Journal, believed you could increase the accuracy of forecasts by understanding market psychology

We believe in being thoughtful and tactical when establishing a position, and that every position should have an exit strategy. We prefer to use technical analysis to analyze trends in price over days, weeks and months. We do not attempt to forecast major shifts in the markets over years or decades as we believe fundamentals like GDP drive economies over the long run. Whenever entering or exiting a position we consider the validity of charts like the moving average convergence divergence (MACD), market profile, and/or point and figure before making a recommendation.

San Francisco has a high concentration of academics with a rich history in technical analysis. The tight knit community gathers around Market Technician Association (MTA) meetings, Technical Securities Analysts Association of San Francisco (TSAA-SF), and the Graduate Certificate in Technical Market Analysis at Golden Gate University as coordinated by Wyckoff Method specialist Hank Pruden.

Appropriate Diversification

Ask five different investment pros how many stocks are required to get to a diversified portfolio and you will likely get five different answers. No magic number exists but there are studies that have identified optimum ranges. The risks of being under-diversified can be justified by any number of Warren Buffet-isms, but the risk of being over-diversified can be costly and is preventable. You can end up receiving performance that looks like the index less management fees. That is to say, you are paying a fund company 1%+ to manage a mutual fund and the fund performance charts like an ETF for which you would pay 0.1% to the fund company. Then you pay an additional layer of fees to cut in the advisor who sold you the bundle and to the bank or the discount broker who pays his salary. Discount brokers, “premier”, or “private” divisions of the commercial banks are serial offenders, almost without exception. We have analyzed mutual fund portfolios produced by these institutions to find a collection of over 3,000 stocks across the underlying. we then chart the performance, and surprise (!), it looks exactly like the Wilshire 5000 less management fees.

No magic number? Then what?Paulsv1

A study from 1970 analyzed multiple time intervals from 1926 to 1965 and found 95 percent of the benefits of diversification among NYSE-traded stocks were achieved with a portfolio of 32 stocks.

A more recent study by the American Association of Individual Investors (AAII) looked at all publicly traded equity securities between 1960 and 2001 and found that:

  • Holding 25 stocks reduces diversifiable risk by about 80%
  • Holding 100 stocks reduces diversifiable risk by about 90%
  • Holding 400 stocks reduces diversifiable risk by about 95%

From our experience, somewhere between 25 and 100 stocks your performance starts to look like the index. A market with greater breadth (over 2000?) can justify a portfolio of over 100 stocks. But as a rule, over-diversification is a sign for lack of skill and confidence, and should be avoided.

Further reading

Variabilities of Return on Common Stocks, 1970

How Many Stocks Do You Need to be Diversified, 2004

For your enjoyment, Warren Buffett on diversification

If you are a know-something investor, able to understand business economics, and find 5 to 10 sensibly priced companies that possess important long-term competitive advantages, conventional diversification makes no sense for you. It is apt simply to hurt your results and increase your risk.” Warren Buffett, 1993