Investment Philosophy

Our philosophy is governed by systematic, evidence-based dimensions of expected return.  These are robust, cost-effective, sensible, and durable across geographic markets.

Historical Observations of Five-Year Premiums

This chart documents the relative five-year annualized performance of returns attributable to premiums in U.S. equity markets.

The blue bars denote five-year periods in which U.S. equity markets, U.S. small cap stocks, value stocks, and high profitability stocks were positive, relative to treasury bills, large cap stocks, growth stocks, and low profitability stocks respectively.  Consider for example, the first red bar in the top row of the above graph, which reflects the annualized performance difference between the U.S. market and one-month U.S. Treasury bills form 1928 to 1932 (i.e., market premium).  During this five-year period, the annualized return for U.S. equities was less than that of one-month Treasury bills, as indicated by the red color (or negative premium).

Despite the higher frequency of positive premiums, outperformance may not be consistent, even over longer periods of time. Long-term investors should consider that premiums are never guaranteed and can undergo periods of negative returns in both relative and absolute terms.

 

Dimensions of Expected Returns

This chart offers evidence that the size, relative price, and profitability have been persistent across time and pervasive across markets. Each premium has appeared over many decades in the U.S. market.  Looking beyond the U.S. markets (i.e., out of sample), these premiums have also appeared in developed ex U.S. and emerging markets.

The data provides evidence that this approach makes sense, offering greater confidence that the premiums will persists in future time periods.

Shoreline Financial Advisors is happy to meet with you to discuss your current situation and your hopes for the future. It’s important to find a team of advisors in whom you can trust.

Feel free to call us at (203) 458-6800.

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