At Atlas Capital Advisors, we’ve formulated our equity investment thinking over a number of years, drawing heavily from personal experience and leading academic research. Successful investing requires a long term perspective. Too frequently the investing community can focus on near term results or the latest fad, neither of which has repetitively proven fruitful. The asset allocation decision is the most important component of out-performance; we identify geographic region and industry sector weightings before individual stocks. We diversify risk and do not believe in concentrated exposures to any one stock or asset class. Favor value over growth, small over large, and high momentum over low momentum. There exists a lot of academic research showing how value stocks have outperformed growth stocks over long periods of time. The same can be said about the academically supported merits of small capitalization stocks over large capitalization stocks or how stocks exhibiting positive momentum stocks have outperformed negative momentum stocks.
Consistently trying to pick winning stocks is very difficult. Choosing managers that repeatedly outperform is equally difficult. Most active managers may outperform their benchmark for a year, but very few can do so for successive years. We believe a more passive approach is a better approach than complete active management. However, being totally passive means portfolio performance is completely subject to market risk. We believe using a multi-factor quantitative process that tilts benchmark portfolio exposures towards favorable attributes like value, size, and momentum is a more successful way to identify the best expected return opportunities.
We do not market time a company’s stock investment entry and exit. Substantial research exists supporting the premise that market timing just doesn’t work; there is no provable method to implement such an investing strategy. One of the biggest robbers of portfolio performance are transaction costs; transactions should be limited, efficient, and low cost.