David@valuealigned.com
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Berk's Blog

Investment Management

Investment Management

“The investor’s chief problem—even his worst enemy—is likely to be himself.” – Benjamin Graham, father of investment management,

Benjamin Graham would have shaken his head in shame were he alive today. Known as the “Founding Father of Security Analysis” and Warren Buffett’s mentor, he regretfully predicted a future in which the investment management industry would do little to protect investors from emotional volatility, much less direct them toward the investments that promised maximum value.

What does this dystopia mean for investment management today? Among other things, a retirement that is a whole lot less enjoyable.

How Much is the Average Investor Losing Out?

According to Dalbar’s 2014 Quantitative Analysis of Investor Behavior (QAIB), average investors in earned only about 2% annually during the past three decades.

That might seem like a solid return, given the number of ups and downs the U.S. economy has had since the 1980s. But consider this sobering fact: a 2% average annual return is worse than the return on stocks, bonds, and just about every other classifiable investment during the past thirty years!

There’s no doubt in my mind that investors could have done better had the money management industry not set the bar so low.

Why Are Investors Underperforming?

To put it bluntly, the modern investment management industry simply sucks.

Let me elaborate:

Most investment managers set the bar too low for success. For example, they will probably expect you to grovel if you earn half a percent more than stocks or bonds do in each quarter. “You’ve outperformed the market!” they will cry, as they carefully fold the fee money that came from your hard-earned paycheck.

It’s this kind of “any return at all” mentality that causes investors like you to lose out—often without even knowing it.

Wait…So ValueAligned® Isn’t Part of the Investment Management Industry?

Nope—actually, our investment management process couldn’t be any more different.

First, we know the true aim of investing, which as the late, great Sir John Templeton observed, is “maximum total real returns after tax.” AND we transform accounting into more reliable economic information that determines if a company is earning economic value added – the true driver of value.

Second, we refuse to be pigeon-holed into prefabricated investing style boxes, like Value, Blend, and Growth. We are value investors. We own shares of great ValueAligned® companies at a discount to our estimate of intrinsic value, no matter into which style box the consultants dump them.

People who invest with modern investment managers are often stuck into a specific style, even if that style is out of favor. People who invest with ValueAligned® Partners are free to fly anywhere that value takes them, within our very high standards.

The Journey Isn’t Over Yet

Stay tuned as we discuss risk, valuation, EVA, and other key components of our investing strategy in the coming weeks.

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