Using Proven Principles

Using Proven Principles 2018-10-29T15:54:18+00:00

An Academically-Rigorous Approach

TIA designs, implements and manages unique individual portfolios for its clients, doing the hard and complicated work of selecting which individual stocks and bonds each client should invest in. A TIA investment portfolio is not just a collection of stocks and bonds: it has a carefully-planned structure that follows client-specified preferences, which rests on top of institutional-style templates for building a broadly diversified set of holdings across the universe of publicly-held securities. TIA’s execution protocols and algorithms for constructing these portfolios are based upon quantitative models embodying established investment principles, that are themselves 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.

Diversification is the centerpiece of successful portfolio theory. Proper diversification protects investors from excess risk associated with too much exposure from any one particular investments. 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.

Structure ensures that your diversification is properly spread across your choices of industries, markets, and types of businesses to avoid too much exposure to industry-specific risks.  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 — often adjusting to eliminate excess market exposure from the industry you may work in — thus expertly 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 is one of an investor’s most important decisions.  Your conversation with your TIA expert about your investment aspirations is how TIA refines your asset allocation recommendation.

  •  4. Leveraging Taxability and Controlling Excess Fees and Frictional Costs

Optimizing portfolios is just one of the ways TIA works to achieve the best returns for our clients. Another facet involves reducing unnecessary costs, which remove a greater percentage of total return from traditional portfolios than most people realize. Excess costs are found when portfolios are comprised of third-party investment products—funds that pay commissions to sales agents and which charge fees for remote investment experts.  Such funds also don’t provide opportunities for harvesting tax losses to help offset gains.  These are two types of “drag” that we typically reduce from our clients’ accounts, along with many other efforts to minimize costs of trading, bid-ask spreads, rebalancing and dividend processing among other things.

  •  5. Asset Security and Client Protection

We avoid investment strategies that 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 do not take custody of 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.

Disproven Approaches

In keeping with our academic tradition, Tiemann Investment Advisors avoids many of the still quite common investment techniques which are 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, promotions, 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 in the selection of equities, and generally eschews the use of 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 prices.  In other words, whether right or wrong, public news is already reflected in the stock prices so there is no advantage provided by these.

“Ideal Portfolio” Designs — Large firms typically use their investment expert to design an “ideal portfolio” which each financial “advisor” uses as the basis for each new client’s portfolio.  This will often result in large tax bills as an existing portfolio is conformed, forcing the realization of accrued trading gains.  Because TIA does not choose a set of preferred stocks but rather uses a quantitatively-designed structure upon which to build each new portfolio, we have the capability to minimize tax payments by new clients who arrive with existing portfolios and still conform their portfolios to our custom design.

Individual Focus, Institutional Discipline

TIA’s investment process begins with you, your aspirations and your unique needs. Our investment expert evaluates your time horizon and attitude toward risk – and much more. He looks at other assets such as stock options, concentrated positions, real estate holdings, business ownership and private investments. He factors in the industry exposures from your sources of income, affiliations, geography and more. From this comprehensive analysis comes a customized portfolio plan, which forms the architectural blueprint for your investments. This plan is the most important element determining the success of your investment program.

With your plan in place, TIA applies sophisticated, quantitative, institutional-caliber portfolio management techniques to carefully build and maintain your portfolio. We manage your portfolio the way large institutions manage theirs, relying on established, professional investment disciplines rather than rumors or hunches. TIA designs then crafts a portfolio for each client that is as finely tailored and as specifically fitted to them and their needs as would be a fine, custom tailored suit, but which is surprisingly competitive in cost—because none of your frees go towards paying sales commissions.

Expertise That Serves Your Investment Needs

Tiemann Investment Advisors is unusual among high-end, professional investment advisory firm, in that it was founded by an investment expert, not a banker, broker or CPA. Central to the strength of TIA’s service is the background and experience of its founder, Dr. Jonathan Tiemann. Dr. Tiemann has spent nearly three decades engaged in investment management at the highest levels. He has developed TIA’s unique approach to bring academic sophistication, institutional professionalism and personal integrity to the management of investors’ portfolios.

TIA places that experience and approach directly at your disposal. TIA concentrates its expertise first on getting to know you and your needs, then designing the right portfolio structure for you and helping you understand it. Only when you approve it does TIA build the portfolio, using proven, sophisticated, quantitative portfolio construction techniques seeking the most efficient implementation of the structural design. Most ordinary advisors simply cannot marshal enough expertise to tackle that complexity throughout the process.

To learn more about TIA’s approach to portfolio design, please contact us to schedule a meeting.  We also provide a completely complimentary portfolio review, where we identify any problematic issues your portfolio may have, so you can know whether or not your current portfolio is subjecting you to excess costs or risks.