At Kobren Insight, we build balanced, diversified portfolios of primarily actively managed mutual funds. Our focus is on maximizing long-term, risk-adjusted performance (and for taxable accounts, maximizing after-tax performance). We feel strongly that this "all-weather" approach is appropriate for most, but not necessarily all, investors.
What Determines Success?
How should one measure success for our money management style, or for that matter, any investment approach? In short, we believe the best answer is really more of a qualitative consideration and not simply how we performed against a quantifiable "bogey." The key determinants of success are our investment approach and service to a client, making them comfortable enough to maintain a level of commitment that allows them to reach their financial goals. In short, by working with us is a client able to achieve better returns than they could have on their own given their personal situations?
Our clients are smart. They are generally quite successful in whatever they do, whether it’s medicine, law, business, academia, or whatever their profession may be or once was. We’re not professing to be smarter. What we hope to offer is a level of awareness, experience, discipline, and convenience that proves to be rewarding over time.
Success Is A Partnership
To ensure that our relationship works, that the most appropriate investment solutions are provided, both parties -- you and us -- need to ask lots of questions, both before we begin the relationship and also frequently once you become a client. You need to understand our investment approach and to make sure you let us know if you are unclear on any aspect of it. We also need to ask plenty of questions of you. We need to know if there are any changes in your personal situation, including your objectives, cash flow, risk tolerances or anything else that may be pertinent to how we manage your portfolio. We also need to know if you are dissatisfied with anything that we are doing, or not doing.
Long-Run Success Doesn't Always Mean "Success" In The Short-Run
Our style of managing money is indeed "all-weather," meaning that it should be, at minimum, reasonable in most market environments. Because of that, it is important to understand that it’s also designed to rarely be the "best" return over any short-term time frame, and there are market environments where it will most likely lag the over-all stock market (as defined by the S&P 500).
Given that our portfolios are balanced and diversified, we will by definition have exposure to multiple asset classes, multiple styles of investing, and multiple managers. In turn that means that while we will most likely have exposure to the best performing parts of the financial markets, we will also most likely have some exposure to the poorer performing parts.
We Have The Tools To Add Value Over Time
We do have tools that if applied in a disciplined manner, should enhance our returns over time. First, we have the ability to gradually shift our asset allocation (mix of stocks, bonds, cash, and alternatives), depending where we perceive value. What distinguishes us from other managers on this count is that some never change their asset allocations while others will make sudden and dramatic shifts. We are somewhere in the middle, though leaning toward the more stable end of asset allocations. This is an important distinction that should be considered when selecting any money manager.
In addition, we have the ability to use unconventional, or "alternative," types of investments. This means that instead of using just conventional stock and bond funds, we will often use funds that focus on less followed and less utilized parts of the market. We think there are opportunities to enhance risk-adjusted performance by employing these alternatives when we feel the timing is appropriate. Again, many other managers don’t stray from conventional asset classes.
We also believe that the best fund managers can, and do "beat the market" over time. We believe there are managers who have superior security selection skills. And we believe we have the research infrastructure (people, process, and resources) to identify those managers. Again, this is a distinguishing characteristic of Kobren Insight relative to other firms.
Some investment firms simply raise assets and outsource their research capabilities. We do our research in-house -- and we eat our own cooking with substantial employee investment in our products. Other investment managers meanwhile, may strictly utilize index funds, and while index funds have merit, they also forgo the opportunity to identify and capitalize on any inefficiencies in the markets.
Our Approach Should Be Superior To Conventional Portfolios Over Time
Over time, our broad-based approach should be superior to conventional investment portfolios, which typically just hold blue chip domestic stocks and Treasury bonds. Over time, smaller companies typically do better than large, blue chip companies. Over time, corporate bonds typically do better than government bonds. Over time, international investments offer the prospect of higher returns than domestic securities. Over time, less liquid and less followed asset classes tend to provide higher returns than more liquid asset classes. And, having the ability to emphasize multiple investments should lower the over-all volatility of a portfolio through the power of diversification, which in turn should provide better risk-adjusted performance (smoother returns) over time – a number which correlates highly with client satisfaction and thus a higher probability of long-term investment success. This is a win-win situation for both client and investment manager alike.
The market environment that makes broad-based asset allocation managers look less attractive, at least in the short-term, is when U.S. domestic large companies, particularly large cap growth and technology stocks, are the best performing asset class in the world. We have seen this situation in recent years, most notably in the late 1990s, and we’ll likely see it for periods of time again in the future. During those times, our philosophy may not look like the most rewarding approach. (Though to an extent we can anticipate and adapt to those market conditions, we will typically lag in that environment). We have confidence, however, and we hope that our clients do as well, that over time, balanced, diversified portfolios will produce the investment results that people really want.
Who Are We Not Right For?
So, whom is Kobren Insight not a match for? Quite frankly, some clients have the temperament and time to do what we do and the need for our service is not as great. Or, some clients have much more aggressive objectives and want to take substantial risks (and potentially attain higher rewards). While we do have "aggressive growth" portfolios (which are available to our more sophisticated clients), there are, quite frankly, even more aggressive options elsewhere. Lastly, there are the clients who are primarily performance-oriented (short-term specifically), which is natural given the emotional nature of investment and human nature in general. Given that we are building balanced, diversified portfolios, there will always be somebody out there with better returns and we recognize how seductive that can be.
While ultimately we need to be judged on long-term performance and it’s fair to question each and every one of our investment decisions, we hope articles like this will help provide a higher level of understanding of what we’re trying to accomplish on your behalf and it provides you with a sense of comfort that our investment process and service is helping you realize your investment objectives. 
