Philosophy

At Early McClintic & McMillan we do not believe that it is possible to accurately and consistently time the financial markets' short-term gyrations. We do not know what the markets will do in the next day, week, month, or even year. We do know that, historically, the markets have moved higher over the long-term, albeit not in a straight line. 

Consequently, although past performance is no guarantee of future results, we strongly believe that the ownership of high-quality equity ("stocks") and debt ("fixed income") instruments represent an individual's best opportunity to achieve asset growth adequate to overcome the effects of inflation. Further, we assert that buying and holding these financial assets long-term (in conjunction with actively monitoring the underlying fundamentals of the respective securities) drives investment success.

As a result of this view, we believe that a key component in creating and maintaining an investment portfolio must be an investor's risk tolerance. Anyone can comfortably adjust to positive returns, but investors' responses to declining markets and portfolio losses vary widely. In addition, both novice and experienced investors often underestimate the degree of volatility that is historically inherent in the financial marketplace. 

Although past performance does not guarantee future results, research compiled by Avatar and Associates, a well-respected investment management firm, indicates that historically the stock market has experienced, on average, a 10% decline every eighteen months, 20% every three years, 30% every five years and 40%, or more, every eight years. In selecting the proper investments to own, we believe an investor must first determine the degree of risk that they can tolerate, create a target asset allocation model diversified in a manner that is historically consistent with this personal risk tolerance, and view their potential for long-term returns realistically within the same historical context. If an investor cannot tolerate a 40%+ decline in the value of their investment portfolio, he/she cannot be 100% invested in stocks. Conversely, if their portfolio is 50% stocks, they cannot expect average annual returns of 10%+ over the long-term. Risk and reward remain inexorably linked. 

We believe that this asset allocation model should serve as the foundation of an individual's investment plan and should be reviewed on at least an annual basis within the context of their current goals, risk objectives and actual returns. This annual review should result in rebalancing or reallocating as appropriate. We strongly believe that because most investors either do not create a personal asset allocation model or, if they do, cannot discipline themselves to systematically rebalance by trimming "winning" positions and adding to "losing" positions, the typical investor dramatically underestimates the potential risk associated with their investment portfolio and equally overestimates the return potential.

With regard to managing the underlying investment assets, we believe that it is appropriate to own stocks and fixed income through the purchase of individual securities, professionally managed segregated accounts, mutual funds and unit investment trusts. As with any investment, we believe that each of these forms of ownership have advantages and disadvantages, and must be evaluated within the context of an individual's goals, risk objectives, investment knowledge and experience, tax status and their degree of desired participation in the investment management process. 

We believe that, irrespective of the form of ownership, the majority of underlying investments must be purchased with a focus on long-term quality rather than short-term performance and, while it may be appropriate for a sophisticated investor to allocate a small percentage of their portfolio to lower-quality and more speculative holdings, it is important that they do so with a clear understanding of the risks they are accepting in an effort to achieve greater returns. 

We believe that in addition to diversifying by, and within, asset classes, it is important to also diversify by industry, location (e.g., international* and domestic) and investment "style" (i.e., growth and value) for stocks and by duration for fixed income (i.e., laddering maturities). 

Finally, we believe it essential to actively monitor the underlying investments with regard to relative valuation, performance versus peer group, consistency of investment execution/discipline and management tenure, while trimming, adding to, or replacing positions as directed by this monitoring process and adherence to the overall asset allocation discipline.

While we are not arrogant enough to believe that this process is the only way to invest successfully, it is our philosophy that it is important to attempt to first manage risk to historically acceptable levels, and only then to seek returns. Given the uncertainty inherent in any investment in stocks and fixed income, we strongly believe that implementing a consistent and unemotional investment discipline irrespective of the gyrations of the financial markets to be essential for successful long-term investing.

*Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

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