Our Investment Philosophy
Eddleman & Eddleman, LLC uses the Modern Portfolio Theory (MPT), the Markowitz Efficient Frontier, The Three Factor Method, and other statistically sound methods in the field of financial economics when recommending investments for clients.**
Based on Nobel-Prize winning financial economics developed by Harry Markowitz, Modern Portfolio Theory takes a holistic approach to the market and the economy, compared to older philosophies that evaluate the merits of individual investments.
Markowitz combined math, finance, and economics to assess investment risk and volatility and created an equation called The Efficient Frontier. The purpose of The Efficient Frontier is to maximize returns while minimizing volatility. Using Nobel Prize winning financial economics means that one doesn’t work to beat the market, but rather to achieve the maximized market return verses risk.
Traditional Investment Philosophies and Why We Don’t Recommend Them
There are two basic forms of strategy for investing today. One school of thought is called active management. This philosophy is based on the idea that markets are inefficient and that given enough ability or knowledge, an individual can beat the market. Such active management utilizes three main tactics including stock picking, market timing and track record investing. Statistical evidence proves that such activities are not fruitful. In fact, they drive up costs making it even more difficult to obtain even market returns.
The second school of thought is based on passive management. This philosophy is based on the idea that markets are efficient, and that no one individual has a “crystal ball.” This is the basis for capitalism and free market enterprise. This is one of the founding principles of Adam Smith who is considered by many the founder of modern economics. He said, “Market forces of capitalism will produce the best results, economically and socially, if they are not tampered with.” Jonathan Clements said it like this June 17, 1997, in the Wall Street Journal: “Investors, as a group, can do no better than the market, because collectively they are the market. Most investors trail the market because they are burdened by commissions and fund expenses.”
Complimentary Initial Session
We’d love to find out more about you and your investment needs and share with you what we do for clients so you can make a good decision about working with an investment advisor.
**. As always, past performance of investments recommended by the firm should not be construed as an indication of future results, which will prove to be better or worse than past results. THE CLIENT’S INVESTMENTS WILL GO UP AND DOWN, DEPENDING ON MARKET CONDITIONS. The firm makes no promises, guarantees or warranties that any of its services will result in a profit to the client or protect the client from a loss. The client may rely on information furnished by the firm to be reasonably accurate and reliable.