An Academically-Rigorous Approach
TIA designs, implements and manages unique individual portfolios for its clients. TIA prefers to invest in individually-owned stocks and bonds, rather than holding third-party funds (such as mutual funds or funds of funds) which add layers of fees. However, a TIA investment portfolio is not just a collection of stocks and bonds: it has a carefully planned structure that follows client-specified preferences on top of a template for the broad distribution of holdings across the universe of publicly-held securities. TIA’s execution protocols and algorithms for constructing these portfolios quantitatively embody established investment principles that are the results of research across more than half a century of investment history by top academics working in the field — including Dr. Tiemann himself — and practiced by Dr. Tiemann ever since.
Here are some of the main principles followed by Tiemann Investment Advisors:
- 1. Diversification.
One of the most dangerous mistakes an investor can make is to stake too much on a small number of investments. A disastrous loss from one large stake could have too significant an impact on the overall portfolio. This adds unnecessarily to an investor’s risk. If you aren’t sufficiently diversified, you’re taking on unnecessary risk of a kind that the market doesn’t reward you for taking. So broad diversification is essential.
- 2. Structure.
You may diversify across a hundred stocks, but if they are concentrated within the same general industry or have too much in common, you have too much exposure to industry-specific risks. Additionally, you won’t have the diversification benefit of investing in the whole market. To build a well-structured portfolio, it’s important to represent large stocks and small ones, growth stocks and value stocks, and distribute these across a broad array of sectors. TIA tailors your portfolio structure to your specific individual needs and market exposures, designing your portfolio for your specific circumstances.
- 3. Asset Allocation
Diversification and structure permit investors to make the most of the opportunities in the equity market. Investors also need to adjust the aggressiveness of their portfolios and determine how much risk to assume. Asset allocation — the decision of how much of the portfolio to commit to equity, fixed income, international investments, and so forth — is the proper area in which to make this form of risk adjustment and thus one of an investor’s most important decisions.
- 4. Leveraging Taxability and Controlling Excess Fees and Frictional Costs
We work hard to optimize portfolios in search of the best returns for our clients. Part of this job involves reducing unnecessary costs, which remove a greater percentage of total return from traditional portfolios than most people realize. Two of the biggest category of excess costs are found when portfolios are structured with “brokered” products—typically funds that pay commissions to the “financial advisor” for getting you to buy in. Such funds also don’t provide opportunities for harvesting tax losses to help offset gains. These are two types of “drag” that we reduce from our clients’ accounts, along with minimizing layers of management fees, direct trading costs, bid-ask spreads, and other things.
- 5. Asset Security and Client Protection
We avoid investment strategies and client relationships that would tend to put our interests at odds with those of our clients. Specifically, we do not use performance-based fee arrangements, which could create an incentive to take excessive risk with a client’s account. We don’t believe it serves our clients to introduce any extra risk to their assets or peace of mind, so we never take custody of any clients funds. Clients maintain their accounts with qualified custodians, authorizing TIA to trade on their behalf in those accounts. In this way, our clients always have direct access and visibility into their portfolios.
In keeping with our academic tradition, Tiemann Investment Advisors avoids common investment techniques based upon principles at odds with academic research but which, nevertheless, are used and even touted by many within the investment advisory industry. Among these are:
Stock Picking — selection of specific securities that is based upon current news, rumors, financial market hype, including paying heed to statements made by TV commentators or other traders about their own holdings (known as “talking one’s book”) and recommendations from bankers or brokers (generally because they are holding inventories of such equities).
Use of Equity Analysts — TIA does not utilize or rely in any way upon the reports of equity analysts, whether positive or negative, and generally eschews the use of released news that, despite the appearance of timeliness, suffers from instant aging in an industry where traders react with lightening swiftness to factor all such “news” into market prices.
“Ideal Portfolio” Designs — Large firms typically use their investment expert to design an “ideal portfolio” and then each financial “advisor” uses that design to conform their new client’s assets to hold those exact securities. This will often result in large tax bills from the forced realization of accrued trading gains upon conversion. TIA does not use an ideal portfolio and works to minimize tax payments by new clients who arrive with existing portfolios.
To learn more about how TIA protects our clients from risks and enhances returns with smart “drag” reduction, please contact us to schedule a meeting. We also provide a completely complimentary portfolio review with no obligation to see what issues your portfolio may have that could be subjecting you to excess costs or risks.