Note: This is my 3rd post of the @projectdomino writer’s challenge.This a challenge for bloggers and writers to post for 30 consecutive days, beginning on May 31. I will receive a prompt, or idea, from them each day, which may be the basis for that day’s post. For more information on this, see my post on May 31, 2011.
Today’s prompt: the world is powered by passionate people, powerful ideas, and fearless action. What’s one strong belief you possess that isn’t shared by your closest friends or family? What inspires this belief, and what have you done to actively live it?
On a personal level, I’m not sure what my answer to this question is.
For my firm, this answer is quite clear.
Most people, in terms of their investing and wealth management, select mutual funds, money managers or brokers based on their past performance, or how they think these professionals will perform in the future. Or they pick the stocks they think will be winners. Most people believe that they can identify some firm or stock that has the ability to consistently outperform the stock market, or a specific asset class. This is called active money management.
One of our core beliefs is just the opposite. We are believers in passive investment management. Passive management means that we purchase a mutual fund that owns all the stocks in a given asset class. For example, instead of trying to choose the 30-50 largest US stocks that may do the best, and then sell them and buy others in a short while, we would own the S & P 500 for the US large growth asset class. As most money managers underperform this “index” or benchmark, we are providing better advice for our clients. We believe this will provide the best long-term investment experience for our clients, as well as ourselves, because of the experiences we have witnessed, as well as the extensive academic research which supports this strategy of investing.
Before I started this firm, I spent time with my CPA clients and saw firsthand how they moved from broker to broker, and mutual fund to mutual fund, as they became disappointed again and again with their advisor’s “strategy” and would go looking for the next strategy that would work. This cycle repeated itself over and over, with many clients. I became determined to find a better way to assist my clients.
The prompt above asked “what have I done to actively live this?”
I started a wealth management firm based on this core philosophy. I affiliated with a national organization, BAM Advisor Services, based in St. Louis, which now manages $14 billion as a network of firms. We generally utilize Dimensional Fund Advisors (DFA) mutual funds,which strictly adheres to the same philosophy, and because of firms like ours, DFA has grown to become the ninth largest mutual fund company in the United States.
We have our core beliefs. It is not the view of Wall Street or of most of the financial media, but we feel more strongly every day that this is the proper way to invest and manage money for the long-term. This philosophy has been successful in all types of financial markets, both in the US and globally.
So in this regard, we have taken some powerful ideas, we are passionate about this strategy and we have been fearless in building a business based on these concepts.