Efficient Markets and the Futility of "Intuition"

Our investment philosophy is based on the belief that capital markets are generally efficient and that market forces are constantly at work. We understand that competition among market participants will make it highly unlikely that any single investor can consistently make profits over and above all other investors. The existence of a “market magician” or someone that has a magic formula for consistently beating the market is a glaring falsehood. If such a tactic really worked, then market forces would takeover – everyone would use the tactic and then no further advantage would be gleaned. The efficiency of markets worldwide has continued to improve with the rapid advances that have allowed almost any investor with a web connection to access the same information. As a result, our global capital markets are significantly more efficient today than they were 25 years ago.

Our investment philosophy is representative of the way markets actually work, not the way that stock brokers earn commissions. Our philosophies are not founded on the trading floors of Wall Street, but were forged in the classrooms and research facilities of the leading economists and finance professors in the world. One such professor, Eugene Fama was quoted as saying, "I'd compare stock pickers to astrologers, but I don't want to badmouth the astrologers.” He notes that for three decades, "reams of academic research" has shown that stock pickers—those investors who are trying to actively exploit their "intuition" regarding market movements—have been unable to consistently generate investment returns high enough to recoup their trading and research costs. This evidence has led to increases in passive investing or indexing. Intellectually, we understand that passively engineered mutual funds are the best building blocks for creating globally diversified portfolios.