- The future price of a stock is dependent upon future information that is not yet known and is therefore random. This means that there is no reliable method for predicting the future price of a stock in relation to its piers and we do not believe that stock picking adds any value.
- There is no proven reliable method to time the markets.
- There is no such thing as an “orphan stock”. Every stock is owned. Therefore, someone who sells a stock because they no longer see it as a good investment is selling it to someone who sees it as the opposite. They cannot both be right.
- The most important factor in determining your future return is the level of risk. If more return is required then more risk must be taken (or goals must be adjusted downwards).
Wealth is created with four elements alone;
- A natural resource
- Intellectual Property
- Skilled Labour
Investors do the job of providing capital in the market place. This is how wealth is created. We call this taking part in capitalism.
The lowest risk investment of all would be Treasury Bills, because they are short term loans to the government. The return from Treasury Bills is what we use to assume the theoretical concept known as the “risk free rate of return”.
If you want to get growth higher than the “risk free rate” then you must take part in capitalism by investing. We believe that capitalism owes you a return in line with stock market returns. Sometimes this return will be poor and sometimes good. Higher charges and trading costs within portfolios increase the likelihood that you will experience a return that is lower than the market. If you are not prepared to take full market risk then you can reduce this risk by holding more cautious assets such as bonds.