Broker Check

Free Markets Work

The basic underlying, core philosophy behind our investment philosophy is: “free markets work.” Not always and not perfectly but in the aggregate they generally do “work!” The global community – particularly in the aftermath of the breakup of the Soviet Union – has come around to this same belief in free markets with the exception of the North Koreans, Cubans, Venezuelans (present government in power) and, perhaps, Bernie Sanders and his minions.

The free market was first described by eighteenth century philosopher, Adam Smith in his book, The Wealth of Nations, as the “invisible hand.” He further explained (paraphrased): “I don’treally know how it works, but it is as if an invisible hand guides the market to determine the best price for goods and services.”

With respect to investing, because the global stock markets, by and large are free and the individuals and entities freely buying and selling stocks is determined by their own self-interest (i.e. pursuit of a profit) the markets themselves best determine the price of individual stocks by virtue of this free interaction of buyers and sellers. Why is the market the best determinant for setting prices? Because the market incorporates not just the thinking and knowledge of one or a few individuals, but the sum of all of the global participants in the market.

In our specific case, rather than attempting to find minor inefficiencies which is virtually impossible on any sort of consistent basis, we look to deliver to our investors what the capital markets themselves deliver in the way of an investment return. This is all we promise – to deliver the market rate of return for the specific asset classes we invest in minus the frictional investment costs – no more and no less. Over time, this has been shown to be the most consistently successful investment philosophy, which is borne out by the fact the market itself has outperformed the vast majority of investment professionals who endeavor to outperform it.

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