Our Investment Process

We build and manage portfolios for long-term investors. Our process for doing so is elegantly simple.

We use a “core plus satellite” approach. The “core” of each portfolio provides very broad diversification among global securities markets. Each core consists of low-cost investments, such as index funds or exchange-traded funds (ETFs), that track domestic or international stock or bond markets. The core will represent between 50% and 100% of each portfolio.

“Satellites” may consist of actively managed investments like mutual funds, or passively managed, index-tracking investments like index funds or ETFs. For example, we might add an actively managed mutual fund as a satellite because we believe in the skill of its manager, or we might add an ETF to gain exposure to an asset class not represented in the core.

We add a satellite if we believe it will improve the portfolio’s long-term performance. Satellites can only be added with the approval of the firm’s internal investment committee, including the independent members.

The composition and allocation of each portfolio are reviewed at least monthly. The portfolios are rebalanced annually. To minimize transaction costs and the impact of taxes on taxable investors, trading in the portfolios will take place only when we have a high degree of conviction that it will contribute positively to the portfolio’s long-term performance.

Ten Core Beliefs Underlying Our Investment Process

  • Remain humble.  No one can consistently predict the future. There are simply too many variables that affect what actually happens.
  • Don’t confuse likelihoods with certainties.  It is possible to calculate probabilities, but there are no guarantees.
  • Be prepared for the unexpected.  History can provide insights about the future, but don’t expect it to repeat itself.
  • Academic research finds “truth” by looking backwards. It may not translate well into the real world of tomorrow.
  • Good ideas can take time to mature.  Knowing that something will happen is not the same as knowing when it will happen.
  • Controlling expenses is important.  Reducing fees, transaction costs and taxes can significantly improve results.
  • It is difficult for active managers to add value. Measuring their value requires the right tools. Reaping their value requires patience.
  • Diversification works.  But over reliance on systems that “optimize” diversification exalts math over reality and results in excess costs.
  • Emotion is the enemy of good investment decisions.  Discipline is important. Experience, judgment and restraint are mandatory.
  • Every portfolio has an investor attached to it. A portfolio is not just the results it produces. It is also the experience it creates.

The Details Behind Our Process

Portfolio Construction—Background

In 1952, Nobel Prize winner Harry Markowitz developed a theoretical process for building diversified portfolios that would provide the greatest level of return for any given level of risk.

In 1958, Nobel Prize winner James Tobin hypothesized that there is only one “super-efficient” portfolio that provides the best possible combination of risk and return—all others fall short.

In 1964, Nobel Prize winner William Sharpe concluded that Tobin’s super-efficient portfolio was the “global market portfolio”—that is, the portfolio the represents how all of the investors in the world have allocated their assets among risky assets.

Tobin’s and Sharpe’s research led them to conclude that the best portfolio for an individual was the super-efficient, global market portfolio, adjusted up or down to the appropriate risk level.

Portfolio Construction—Building the Core

  • We start with the complete global market portfolio.
  • We eliminate asset classes that represent 5% or less of the global market portfolio (“sliver positions”).
  • We eliminate sliver positions because (1) they represent only a small portion of the global market portfolio, (2) holding them would generate additional transaction costs, (3) it can be difficult to find good investable “proxies” (e.g. index funds or ETFs) for these asset classes and (4) the proxies for these asset classes have higher internal expenses.
  • We adjust the stock/bond allocations so they are appropriate for three different risk levels: conservative, moderate and growth-oriented.  These are the risk levels represented by our portfolios, the GX and G-ETF 20, 40, 60, 80 and the 100 respectively.
  • We add a slight home-country bias.  US stocks represent 60% of the total stock allocation and international stocks represent 40%.  US bonds represent 60% of the total bond allocation and international bonds represent 40%.
  • We find the “best” index funds and/or ETFs to represent the asset classes that comprise the core.  We determine “best” based primarily on the specific index that the fund or ETF tracks and on its cost (internal expenses and transaction costs).
  • We rebalance the core annually.  In extraordinary circumstances, we may rebalance the core more or less frequently.
  • The core can represent between 50% and 100% of a portfolio.
  • The core roughly represents Tobin’s and Sharpe’s super-efficient, global market portfolio, minus the sliver positions and adjusted for risk.

Portfolio Construction—Adding Satellites

  • We add satellites for one of three reasons: (1) to gain exposure to an asset class not represented in the core, (2) to overweight or underweight an asset class that is already represented in the core or (3) to benefit from the skill of an active manager.
  • We add satellites only when we have a high level of conviction that they can add value to the portfolio.
  • Satellites can represent as much as 50% of a portfolio.
  • Through satellites we can overweight or underweight the equity or fixed income targets for our portfolios by plus or minus 5%.
  • Our process for identifying skilled active managers involves both qualitative and quantitative aspects and is an ongoing process.
  • We are patient and will hold each active manager long enough to allow the manager’s process a chance to add value.
  • We rebalance the satellites annually.  In extraordinary circumstances, we may rebalance the satellites more or less frequently.


Our internal investment group monitors the performance and allocation of the components of our portfolios on an ongoing basis.