Nobel Prize Winning Investment!

It may have escaped your notice but two weeks ago the Noble prize for Economics was awarded for 2013. This was very exciting for us at Manse Capital as one of the joint winners was Eugene Fama.

Although the name may not appear immediately recognisable to you the work that he has undertaken to win the prize should be by now, because it underpins the fundamental principles of our investment philosophy and how we manage your money. In conjunction with Ken French, Eugene developed the theory that to capture the returns available from the capital markets (stock markets) you had to stick to three basic ideas:-

  1. Be permanently exposed to the market and don’t try to time when would be best to buy and when would be best to sell.
  2. Have a modest tilt or bias to smaller company stocks in your portfolio as these carry a higher risk rating and are therefore likely to provide higher returns in the long term than the market as a whole.
  3. Have a modest tilt or bias to Value (cheap) company stocks in your portfolio as these carry a higher risk rating and are therefore likely to provide higher returns in the long term than the market as a whole.

It is these ideas along with some newer research in to “market momentum” that underpins the way in which Dimensional Fund Advisers manage your money within their funds. As Dimensional funds are one of the major holdings within all our portfolios, all our clients have benefited from the work of this Nobel Laureate, and we are very pleased to have our faith in designing an investment process based on academic research rather than speculation rewarded.