Key Investment Principle #1…Markets Work
Rather than trying to outguess the market, let it work for you
Markets throughout the world have a history of rewarding investors for the capital they supply. Companies compete with each other for investment capital, and millions of investors compete with each other to find the most attractive investment opportunities. This competition quickly drives prices to fair value, ensuring that no investor can expect greater returns without bearing greater risk.
Investing vs. Speculating
Traditional investment managers strive to beat the market by taking advantage of pricing "mistakes" and attempting to predict the future. Too often this proves costly and futile. Predictions go awry and managers miss the strong returns that markets provide by holding the wrong stocks at the wrong time.
When the investor rejects costly speculation and guesswork, investing becomes a matter of separating the risks that investors are compensated for (market risk) from the risk where they receive no compensation (individual company risk, industry risk, single country risk, etc). It's then a question of determining how much of these risks to undertake. Financial science identifies the sources of investment returns, and we provide the tools and experience to achieve them.
Gaining Clarity
"In an efficient market, at any point in time the actual price of a security will be a good estimate of its intrinsic value".
Eugene F. Fama "Random Walks in Stock Market Prices, Financial Analysts Journal, Jan/Feb 1995
Early recognition and understanding of the "efficient market" theory can direct investors to a passive investment approach...saving them from below-market returns and the additional costs associated with active management.