Investment Philosophy We manage our investments under two major categories: Equities and Fixed-Income. Each is a carefully chosen strategy and is based on our basic beliefs that education and consistent attention to the details deliver the results each of our clients are seeking. Equities RCM’s Equity Investment Philosophy is based on Nobel Prize winning research rooted in academia. These beliefs include: Diversification reduces risk: Harry Markowitz won the Nobel Prize in Economics in 1990 for this groundbreaking research on portfolio risk/reward. Assets with dissimilar price movements yield true diversification as that minimizes volatility and increases compound returns. Markets are efficient: The price of a stock is usually the best estimate of its intrinsic value, as it contains the knowledge and expectations of all investors. Asset Allocation is key determinate of portfolio returns: Which is how you divide your assets amongst equities, fixed income, and cash. The goal is to determine the optimal mix to yield the best return per unit of risk taken. Passive Management of portfolios is superior to active management: The overwhelming majority of the time the active managers whose goal it is to beat the market by stock selection and market timing actually fail to even meet their respective bogeys and underperform them, usually incurring greater fees for their underperformance! Asset Class investing is superior to Indexing: Indexes are not the best representation of asset classes, they are in fact commercial benchmarks. Greater flexibility with portfolios, a trading methodology more suited for long term investors, and more accurate reflections of the true asset classes help enhance the premiums earned for small and value investing by doing so in asset class funds which do not ignore less liquid holdings. There exists a “size effect” and “value effect” in equities: The stock market is a risk/reward or cost of capital story, in which for every degree of risk taken there should be a reward. Thus, long term rates of returns indicate that smaller companies and value companies (temporarily distressed companies) should earn investors premiums. Fee Only is superior to Commission or Fee Based: Commission based brokers are limited to only those investments that earn them commissions and/or 12b-1 fees, and fee based advisors take not only commissions and 12b-1 fees, but also a fee! As a fee-ONLY advisor there is full disclosure of fees and complete transparency as to the total cost of receiving unbiased asset management. Our goal as a fee only advisor is to minimize costs, deliver sound advice, and develop a suitable long term investment policy. Fixed Income Because not every portfolio is dominated by equities, it is very important that investors also seek out investment firms that have a well defined, structured, and sound fixed income philosophy as well as equity philosophy. Whether an investor invests in fixed income to provide an income stream while protecting principal, or whether he or she invests in fixed income only to dampen the volatility of the equity portfolio, RCM’s fixed income philosophy includes the following: Invest In High Quality or Investment Grade Fixed Income: Fixed income is typically used to produce interest income, or to dampen the volatility of an equity portfolio. Neither of those reasons has validity if the fixed income does not adequately protect principal. Remember high yield or junk bonds carry high risk, and in the case of bankruptcy are considered “unsecured” loans which are not backed by the issuing company. We simply believe that the best bond portfolios are made up of higher grade fixed income. Keep Durations and Maturities Short to Intermediate: Longer maturity fixed income instruments are riskier than shorter term issues and the returns are NOT consistently greater. Additionally, shorter term fixed income has a lower correlation with equities than do long term issues, therefore short term issues provide better diversification in an equity portfolio.
Equities RCM’s Equity Investment Philosophy is based on Nobel Prize winning research rooted in academia. These beliefs include: Diversification reduces risk: Harry Markowitz won the Nobel Prize in Economics in 1990 for this groundbreaking research on portfolio risk/reward. Assets with dissimilar price movements yield true diversification as that minimizes volatility and increases compound returns. Markets are efficient: The price of a stock is usually the best estimate of its intrinsic value, as it contains the knowledge and expectations of all investors. Asset Allocation is key determinate of portfolio returns: Which is how you divide your assets amongst equities, fixed income, and cash. The goal is to determine the optimal mix to yield the best return per unit of risk taken. Passive Management of portfolios is superior to active management: The overwhelming majority of the time the active managers whose goal it is to beat the market by stock selection and market timing actually fail to even meet their respective bogeys and underperform them, usually incurring greater fees for their underperformance! Asset Class investing is superior to Indexing: Indexes are not the best representation of asset classes, they are in fact commercial benchmarks. Greater flexibility with portfolios, a trading methodology more suited for long term investors, and more accurate reflections of the true asset classes help enhance the premiums earned for small and value investing by doing so in asset class funds which do not ignore less liquid holdings. There exists a “size effect” and “value effect” in equities: The stock market is a risk/reward or cost of capital story, in which for every degree of risk taken there should be a reward. Thus, long term rates of returns indicate that smaller companies and value companies (temporarily distressed companies) should earn investors premiums. Fee Only is superior to Commission or Fee Based: Commission based brokers are limited to only those investments that earn them commissions and/or 12b-1 fees, and fee based advisors take not only commissions and 12b-1 fees, but also a fee! As a fee-ONLY advisor there is full disclosure of fees and complete transparency as to the total cost of receiving unbiased asset management. Our goal as a fee only advisor is to minimize costs, deliver sound advice, and develop a suitable long term investment policy. Fixed Income Because not every portfolio is dominated by equities, it is very important that investors also seek out investment firms that have a well defined, structured, and sound fixed income philosophy as well as equity philosophy. Whether an investor invests in fixed income to provide an income stream while protecting principal, or whether he or she invests in fixed income only to dampen the volatility of the equity portfolio, RCM’s fixed income philosophy includes the following: Invest In High Quality or Investment Grade Fixed Income: Fixed income is typically used to produce interest income, or to dampen the volatility of an equity portfolio. Neither of those reasons has validity if the fixed income does not adequately protect principal. Remember high yield or junk bonds carry high risk, and in the case of bankruptcy are considered “unsecured” loans which are not backed by the issuing company. We simply believe that the best bond portfolios are made up of higher grade fixed income. Keep Durations and Maturities Short to Intermediate: Longer maturity fixed income instruments are riskier than shorter term issues and the returns are NOT consistently greater. Additionally, shorter term fixed income has a lower correlation with equities than do long term issues, therefore short term issues provide better diversification in an equity portfolio.
Equities
RCM’s Equity Investment Philosophy is based on Nobel Prize winning research rooted in academia. These beliefs include:
Fixed Income
Because not every portfolio is dominated by equities, it is very important that investors also seek out investment firms that have a well defined, structured, and sound fixed income philosophy as well as equity philosophy. Whether an investor invests in fixed income to provide an income stream while protecting principal, or whether he or she invests in fixed income only to dampen the volatility of the equity portfolio, RCM’s fixed income philosophy includes the following:
