INVESTMENT
PRINCIPLES
At Cornerstone Investment Services, we believe that a successful
investment plan is built on a strong foundation of investment principles.
Market Cycles
History shows that markets and economies have upswings and downswings.
The problem is that these fluctuations can be so long, many people
forget the cyclical nature of the market. Once an up wave is in
place, many investors believe it is permanent. Long-term market
cycles tend to be measured in decades - not days, weeks or even
years. The daily "noise" of the market is usually irrelevant
to the long-term cycle.
At
Cornerstone, we have researched hundreds of years of market cycles
to aid our clients in understanding where we are within the cycle.
It is more important for an investor to know where in the long-term
cycle the market is, rather than this week’s "event"
or the recent market rally or drop. Our objective is to position
assets to take advantage of the current trend and prepare for the
next change in the direction of the trend.
A
"top-down" view.
We first scrutinize the economy, determine the sectors that will
benefit most, then look within those sectors for the industries
best positioned to succeed. Then we look for the companies with
the best value, as measured by various classical standards such
as P/E ratios, dividend yields, book values and others. By being
top-down, our view of the choices of investments for our clients
is not limited by some pre-determined selection list. This view
gives us a clearer grasp of how stocks, bonds, cash and even hard
assets could fit into your investment portfolio.
Value investing.
Value investing requires discipline and time. Aided by some of Wall
Street’s most sophisticated analytical tools and research
from well respected firms, we are able to sift through thousands
of stocks for our clients. We are not interested in the latest hot
stock or fad. Rather, we painstakingly look for opportunities to
pay a fraction of the real value of a company. By concentrating
on value, we are not limited to just stocks. This discipline can
be applied to bonds and mutual funds as well.
Risk - evaluation, management and reduction.
At Cornerstone, we view risk as the unseen killer. It is ignored
during the up wave and feared and avoided only after a down wave.
Instead of ignoring it on the way up, we concentrate on reducing
risk. This is accomplished in a number of ways, but first it must
be measured and recognized. By having a clear understanding of the
risks of a given investment or portfolio, an investor can make better
decisions. This is not to say we eliminate risk. Without risk, there
can be no reward. Our belief is that a portfolio that keeps an investor
up nights worrying is too risky. The client’s comfort level
is paramount. We also factor in investor psychology. It is our position
that investors should avoid the activity of the crowd and not be
fooled by either euphoria or gloom. By eliminating emotion, the
investing picture gets much clearer from a risk perspective.
A strong foundation is built.
By
combining these four Cornerstones of investing, market cycles, top-down
view, value investing and risk management, we are able to build
a strong foundation for your investment future.
He
who gathers crops in summer is a wise son, but he who sleeps during
harvest is a disgraceful son. (Prov 10:5)
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