feel the best way for most investors to build long-term wealth
is to maintain
a large portion of their net worth in equities (stocks). U.S. equities,
as well as the equities of most free countries, have proven to
be the superior choice for long-term investors. Stocks, as an asset
class with an average annual return of about 10% per year over
the last century, have outperformed corporate and government bonds,
gold, real estate (if not leveraged), CDs, and savings accounts.
Stocks ultimately follow corporate profits, and we experienced
substantial economic growth during the past century – and
this growth should continue. Stocks are shares of ownership in
business enterprises, and when free people are unhindered and allowed
to improve their lives then they will continue to create, build,
progress, and grow.
We recognize that even though stocks have outperformed other asset
classes over the long-term, they are also riskier and more volatile
than other asset
classes. Adding some fixed income securities and/or investment choices from
other asset classes can enhance the stability and diversification of a portfolio,
and can smooth out investment performance.
At Bon Investments, we consider ourselves
to be “value investors.” We
believe the majority of the world’s most successful investors
(e.g. Warren Buffett, John Templeton, Peter Lynch) have also adopted
this approach to investing.
We appraise companies on a fundamental basis, looking to buy those
that are significantly undervalued in relation to their intrinsic or “true worth”.
Our preference is to find those companies with the fastest sustainable growth
at the lowest possible valuations. Oftentimes these companies will have low
valuations because they are overlooked, ignored, or temporarily out-of-favor.
To take advantage of these opportunities it is important to think independently
and to be willing to go against conventional wisdom.
The importance of having a long-term outlook dovetails nicely with
value investing because patience is essential for a value investor.
It can take many years
for an undervalued stock to “play out” and properly adjust to a
more rational valuation level. It takes many years to
build wealth as well. It is the compounding of
those attractive average annual returns (stocks have averaged
about 10% / year historically)
that can build great wealth over the long-term. Holding
stocks for the long-term also helps smooth out the volatility inherent
with the stock market, so your own returns are then more likely to
resemble the excellent historical average returns.
In an ever-changing world, it is important to adjust to changing circumstances.
Many financial advisors believe that maintaining one standard portfolio allocation
for all seasons, and only changing that allocation to be more conservative
as a client ages, is the best way to manage money. We believe there is still
no substitute for thoughtful and informed decision-making, and we believe in
taking action for client portfolios based on our assessment of the investment
We typically keep client portfolios fully-invested, but we may on occasion
raise large cash positions or employ hedging strategies in order to position
portfolios differently. The investment landscape tends to change gradually,
so we usually make portfolio allocation changes in an incremental manner. We’re
prepared to make any portfolio adjustments that we feel will lead to superior
investment results for our clients.