Investment Philosophy
Asset Allocation PDM Advisors (PDM) is a strong proponent of asset allocation. This idea holds that a diverse collection of asset classes blended correctly leads to wide diversification, lower volatility (risk), and enhanced performance over time.
One well known academic study (1) found that asset allocation accounts for 92% of an investor's performance — outweighing factors like the selection of individual securities and the timing of one's investments. Clearly, it's critical to take a well thought out approach when constructing your investment portfolio's asset allocation. More information...
- “Active” investing
believes that a smart portfolio manager can beat the market by discovering undervalued stocks and buying them. The problem is the market, with its millions of buyers and sellers acting on the same information, have determined what they feel is a fair market price. “Undervalued” suggests that these vast numbers of buyers and sellers are wrong. More information...
- PDM uses “passive” investing. This means instead of trying to “beat the market”, PDM uses indexing to compose a portfolio of diverse asset classes to try to spread risk and reduce volatility (risk) and earn the market return. For example, to get exposure to large US stocks, PDM uses the Vanguard Large Stock Index (symbol VV). This one investment holds 733 large US stocks with only a .13% annual cost.
Learn more about passive investing.
- PDM currently uses the following asset classes in client portfolios (and mine): US Large Cap, US Mid-cap, US Real Estate, International Real Estate, International Developed, International Emerging Markets, Commodities, US Bonds, and US Treasury Inflation Protected Bonds. Other asset classes are always being considered for diversification and risk reduction purposes. Adjustments to portfolios are done occasionally to reflect large macroeconomic trends in the global economy. There is no rapid trading, gimmicky systems, or sudden changes in strategy. Composing an intelligent, well thought out portfolio, making minor changes as necessary and monitoring it on a daily basis is what an Advisor does to help the client reach their financial goals. Per the 2008 Standard and Poors Index vs Active Scorecard (SPIVA), 71.9 percent of actively managed large-cap funds trailed the S&P 500; 75.9 percent of actively managed mid-cap funds trailed the S&P MidCap 400; and a stunning 85.5 percent of actively managed small-cap funds trailed the S&P SmallCap 600. S&P says the results were consistent with the previous five-year cycle, from 1999 to 2003. If active fund managers cannot hit their benchmark, why pay their higher fees?
1Source: Gary P. Brinson et al. "Determinants of Portfolio Performance," Financial Analysts Journal, July/August 1986. Updated in Financial Analysts Journal, May/June 1991.