An Introduction to Evidence-Based Investing – Part 1

We cannot predict the future.

Traditional investing is based on the premise that it is possible to make such predictions. Investors are constantly being sold the idea that if they just buy this stock (or fund), invest at this precise time, follow this hot tip, they will be well on their way to a life of riches – despite all the evidence to the contrary.

Dalbar’s 2015 Quantitative Analysis of Investor Behavior reported a mere 5.2% return for the average stock investor, against the 9.9% return of the S&P 500 index. Yet this knowledge rarely deters those lured by the thrill of being the one to succeed where others failed. They may think they’re smarter or more resourceful, or have access to market secrets that no one else has. So they continue obsessively tracking the market, searching for the ‘best’ money managers.  Whenever they think they’ve found a better deal, they shift their funds around, only to ultimately rack up trading/switching costs and end up taking risks they realise they could not afford when it all comes crashing down.

Surely there has to be a better way to invest. Investing should be a way to grow your money over time, not to risk it all on a wild gamble and hope for the best.

That’s where Evidence-Based Investing (EBI) comes in. Instead of forecasting, EBI utilises financial science, verified data and documented research to maximise investment outcomes.

Scientific advancements over the past few decades have given us new insights into finance and how the market operates. Decades of data from the stock market has taught us which investment approaches work and which are statistically doomed to failure. We know which specific factors drive investment returns, and how these can be utilised to optimise a portfolio for the best possible return at a given level of risk. We know that the key to investment success is not luck, but sheer discipline.

Evidence-Based Investing brings all of this together to make informed investment decisions based not on forecasting but on our knowledge of what actually works and what does not work, applying financial science to derive optimal solutions for each individual investing challenge.

With EBI, we don’t attempt to time the market or speculate on stocks. We don’t build portfolios based on what we think will happen tomorrow, or months or years from now. Instead, what we will do is construct robust, globally-diversified portfolios ​grounded in economic theory and backed by decades of empirical research, resulting in a security selection that is skewed towards proven factors of market outperformance. We will optimise that portfolio to match your desired level of risk. Finally, we will be there for you to help you manage your emotions and fears through market ups and downs, standing you in good stead to attain your financial goals.

Read on: An Introduction to Evidence-Based Investing – Part 2