We believe how we approach investing matters in the long run far more than any specific security in our clients’ accounts. We would describe our philosophy as a disciplined, opportunistic approach to value that cuts across geographies, industries, and asset classes, with a strong emphasis on capital preservation and risk management. We likewise believe that investing is seasonal, and that different investment seasons call for different strategies – for instance, approaches that would have worked brilliantly during the global financial crisis of 2008 – 2009 would not necessarily have fared as well in the Quantitative Easing era that ensued. Value is not seasonal, and our emphasis on value as a North Star cuts across all investment seasons. But we also believe in adapting the strategies we deploy to pursue value to the investment environment.
SAM uses a unique approach to asset allocation, or selecting the mix of investments in a portfolio, which differs from methods used by many other managers. A traditional “Wall Street” type asset allocation may involve a formulaic split between stocks and bonds based on your age. However, this type of asset allocation doesn’t account for situations when both stocks and bonds may be overvalued. The traditional approach also omits less easily accessible asset classes, which can play a crucial defensive role. SAM believes in multi-asset class investing, and we define our investable “opportunity set” to include less traditional asset classes such as gold, silver, and gold and silver mining equities; residential real estate; timber; and farmland.
Specifically, SAM uses an asset allocation approach we call Allocating to Value™ that is built on three ideas:
- Build resilient portfolios. Virtually all long-term investors experience both up and down markets, and no investor can perfectly predict when markets will change. SAM aims to diversify across global asset classes to exploit counter-correlations, with the goal of creating portfolios that are resilient (or “all weather”) in the face of different economic outcomes and states of the world.
- Create “Risk Parity” in portfolios. This means normalizing the size of positions within a SAM portfolio using comparable units of risk, allowing us to manage each position based on a “risk budget” that is apples-to-apples even across different asset classes. We believe this results in superior risk management relative to approaches that rely on static asset allocation.
- Rebalance by “Allocating to Value™.” SAM portfolios are regularly rebalanced based on value, liquidity conditions, and sentiment across different asset classes – asset classes that offer a favorable risk/reward at one point in time may offer a less attractive one at others. We seek to capture these changes over appropriate intervals of time.
For more on the investment philosophy, please see Portfolio Frequently Asked Questions.