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Investment Management

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Strategy Based on
Proven Research

B.E.S.T. Wealth Management provides an investment management strategy grounded entirely in academic, historical, and Nobel Prize winning research … not Wall Street predictions or media fear mongering.

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Our 6 Core Principles

Principle #1

Markets are
Efficient

Principle #2

Target Investments
with Higher
Expected Returns

Principle #3

Diversification
is Essential

Principle #4

Balance Risk
and Return

Principle #5

Don't Make
Emotional Decisions

Principle #6

The Media is Not
Your Friend

Note that past performance is no guarantee of future results and there is no assurance these previously mentioned techniques are suitable for all investors or will yield positive outcomes.

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Markets are Efficient

An efficient market means that current stock and bond prices are fair.

Here’s why.

The stock and bond markets consist of millions of investors who collectively process information to determine the current price of individual investments. Current prices are quickly reflective of all available information and, as a result, the prices are fair.

Several decades ago, information traveled much more slowly so there was an advantage to having certain information that others did not yet have. However, in today’s world, since information is available so rapidly, we can conclude the market instantly prices stocks and bonds to reflect all the available information.

Note that we didn’t say investment prices are correct; we simply said they are fair.

In reality, we know market prices are not correct because stock and bond prices rise and fall over time. However, the current price is the best estimate of the accurate price.

Based on this knowledge, it’s risky to wait for a better time to invest or to react based on so-called “hot” investment tips.

It’s also a bad idea to search for mispriced investments. Research shows that the majority of money managers who take this approach underperform the market. Even if you felt the market was incorrectly pricing a stock or bond, millions of investors would have to catch up for you to capitalize on your insight.

Target Investments with Higher Expected Returns

By accepting that markets are efficient and the current price is the best estimate of the accurate price, it makes sense to target investments with higher expected returns. Decades of research by Nobel Laureate Eugene Fama, along with others, generally reflects that over time:

  • Stocks outperform Bonds
  • Small Stocks outperform Large Stocks
  • Value Stocks outperform Growth Stocks
  • High Profitable Stocks outperform Low Profitable Stocks

Because of this research, we emphasize areas of higher expected returns within the stock section of your investment portfolio. Although we also target areas of higher returns with bonds, the primary purpose of bonds is to reduce risk; we do this using high quality bonds.

Diversification is Essential

Diversification is a fancy word that means dividing your financial investments among different asset categories, such as stocks, bonds, and cash with the goal of reducing risk.

For example, even though small company stocks tend to outperform large company stocks over time, you shouldn’t invest 100% of your portfolio into small company stocks. No one knows when or if the higher returns are coming. Since there are no guarantees, you should own many different types and sizes of stocks and bonds.

Balance Risk and Return

The more risk you take with your investments the higher you expect your return to be. However, you don’t want to take on unnecessary risk. In other words, it doesn’t make sense to assume extra risk if you don’t expect to earn more.

Historical research shows that targeting investments with higher expected returns, as mentioned above, is worth the extra risk. However, if taking on more risk isn’t necessary to accomplish your goals, then we’ll consider structuring your investment portfolio in a manner to reduce risk.

Don't Make Emotional Decisions

Emotional investment decisions will likely reduce your returns.

How many times have you been upset and said something you later regretted? Emotional decisions in
life are generally not wise—and the same holds true for emotional investment decisions.

Consider the stock market.

The DALBAR study, known as the Quantitative Analysis of Investor Behavior (QBIA), has historically shown that the average investor earns much less than the stock market. For example, from 1998 to 2017, the average investor earned 5.29% per year whereas the stock market (S&P 500) returned 7.20% per year.

So, why the difference between the average investor and the stock market?

The average investor felt fearful when the market was declining … and sold their investments. And when the market was on an upswing? The average investor felt confident and bought as the market went up. This results in Buying High and Selling Low and is a recipe for disaster.

You may be thinking a return of 5.29% per year is good, but don’t be fooled. Compared to the stock market return, you could be costing yourself hundreds of thousands, if not millions, of dollars.

The Media is Not Your Friend

The media is notorious for selling fear.

Think about it for a minute. If you were responsible for getting people to watch your television show or read your article, you would likely use an eye-catching headline such as, “The Death of Stocks” versus something like “Steady Eddie Investing.”

The media’s goal is to sell advertising spots, not to give financial advice. This is why they have such inflammatory headlines. They want you to see or read their content so that companies will continue to advertise, which means more money in the media outlet’s pocket!

Please do yourself a favor and don’t confuse entertainment with useful financial advice.

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