Oars Capital’s investment philosophy is rooted in the concepts of asset allocation and efficient markets. We believe in creating a solid investment plan, backed by research, then executing that investment plan.
The efficient market hypothesis was created by a Nobel prize winning finance professor at the University of Chicago. It says that in active, liquid markets, all current information is fully priced into security prices. In every stock transaction, there is a buyer and a seller. When millions of transactions happen per day, all the relevant information about the company, the economy, the market, etc. are brought into each of those transactions meaning, absent insider information, there is no ability of the individual investor to outperform the market using individual securities.
The efficient market hypothesis means the most important investment decision is asset allocation. Asset allocation is the process of deciding how to allocate your investments among different asset classes: stocks, bonds, large companies, foreign companies, etc. Research by Professor Roger Ibbotson suggests approximately 90% of returns are driven by asset allocation.
To determine a client’s asset allocation, we talk through your risk profile, financial position, time horizon and investment goals. Using these data points, a portfolio is put together with the goal of maximizing investment returns at a specific point of investor risk. These points of maximum return for a given level of risk are called the Efficient Frontier. There is no ideal asset allocation, but there is an ideal asset allocation for you. We work to find your place on the Efficient Frontier.
We use a portfolio of Exchange-Trade Funds (ETFs) to gain exposure to a variety of asset class. ETFs are more tax-friendly than mutual funds and often have significantly lower expense ratios. Lower fees on an ETF means higher returns for you, the investor. We analyze ETFs on the expense ratio, total assets and investment approach. We are not bound by ETFs of a single issuer. Therefore, we look for the exposure to best provide clients a portfolio that meets your goals and objectives.
After creating your portfolio, we rebalance over time based on price movements. Many firms rebalance on simple calendar-based intervals. Annually, quarterly or some other time frame. We set price bands on individual asset classes and rebalance when the market is telling us the time is right. We believe this is a better process to achieve our goals of maximizing your returns for your desired level of risk.
Effective asset allocation coupled with dynamic rebalancing is the optimal way to best help you achieve your financial goals.