Evidence Based Investing

Random-Walk-Boxl

The core of our investment approach is to remove emotion and speculation and focus on the science and evidence behind successful investing.

The “Random Walk” hypothesis is a financial theory that stock market prices evolve  according to unforeseen events and information that cannot predict its future.  

There is so much we cannot control when it comes to investing.

Picking winning stocks

Financial press

Inflation

Picking superior managers

Interest rates

Market performance

Timing markets

Exchanges rates

Taxes

Searching for a framework in creating order out of the chaos of capital markets, we discovered evidence that has accelerated in the last forty years and allows financial scientists the data and technology to validate its research.   With confidence in markets, connections to the academic community, and focus on implementation, we direct client portfolios where science leads and remove human behavior as the biggest barrier to portfolio performance.

The journey leads to three Nobel Prize winning laureates, and more importantly, the actionable knowledge and technology required to harness higher expected returns.

 

The findings of financial scientists provide a higher power for investors to access capital markets with advanced knowledge and strategies they never had before.

Harry Markowitz, William Sharpe and Eugene Fama each a Nobel Prize winner in economics are the leading academics today in the field of portfolio theory and market performance.

Their research challenged the entire fund management industry built on the premise that active stock-picking funds reliably beat the market.  Empirical evidence proves these managed funds frequently perform poorly against their respective benchmarks.

Here is the most commonly cited market as an example:

Percentage of Large-Cap US Active Fund Managers that underperformed the S&P 500 Index over given periods

1 -Year

66% underperformed

3 -Years

93.39% underperformed

5 -Years

88.30% underperformed

15 -Years

92.15% underperformed

With proof in hand, the Capital Company entered the field of Evidence Based Investing (EBI).

 

 

Evidence Based Investing accommodates investors seeking higher expected returns using financial science to invest in a globally diversified portfolio of rules-based indexes.  

Expected returns are embedded in the market itself—letting the collective knowledge of millions of buyers and sellers set security prices.  Letting efficient markets do what they do best—drive information into prices—frees us to spend time with clients setting and achieving their financial goals.

It means we take a less subjective, more systematic approach to investing.  This allows us to implement consistently through any market cycle.

Evidence Based Investing - The Capital Company