Each client portfolio reflects unique considerations. Nevertheless, there are strategies and themes common across all my client portfolios. In general I emphasize value and income-producing securities, thoughtful contrarianism, and disciplined diversification across asset classes and geographic regions.
First, I tend to focus on value versus growth. A key reason for this bias is income. Roughly half of global market returns during the 20th century were due to dividend reinvestment; dividend payments and reinvestment, then, are crucial, particularly during periods of market weakness. In this sense my core philosophy has a defensive character in that I do not rely solely for returns on finding securities that appreciate; rather, we seek to be paid a share of a company’s profits on a regular basis.
I also look to bonds and other fixed-income securities for income, but dividends, because they can increase over time (unlike bond coupons), are critical in the long-term battle against inflation.
Second, my focus on value also informs the practice of intelligent contrarianism. I work to identify out of favor assets and asset classes wrongly ignored by the crowd. Low prices are inseparable from investor pessimism; likewise, assets loved by investors might well be overpriced. Efforts at intelligent contrarianism extend to regular portfolio rebalancing, which in a systematic way reduces exposure to asset classes favored by others and increases exposure to those currently out of favor.
Finally, I believe in diversification, by industry, geography, and asset class. While much of the world’s market capitalization exists outside of the United States, domestic investors continue to overweight their portfolios in US assets. I want to make sure our allocations reflect the increasingly global distribution of market value, and we look outside the US for growth and diversification, emphasizing two key categories: stable countries with a history of excellent performance and emerging countries with high growth rates.