Investment Philosophy

At Wishart Wealth Management, our investment process is underpinned by five key principles:

1. Capitalism works

Capital markets have consistently rewarded investors for the capital they supply. Companies compete for the supply of investment capital, and millions of investors compete with each other on a daily basis for the most attractive returns.

2. Markets work

Competition drives prices towards fair value so that on any given day a point of equilibrium is reached between the buyers (optimists) and sellers (pessimists) on the price of a security (share). This price moves randomly, and almost instantaneously, to reflect new information. That makes it difficult for any individual to systematically profit from market mis-pricings. We therefore accept market rates of return. Our evidence shows that very few ‘active’ investment managers consistently ‘beat’ the market or any given benchmark. Net of their costs (not all disclosed), their number is fewer still.

“Losing” active funds are often merged, closed or renamed – resulting in an overestimation of past investment returns.

3. Risk and return are related

We believe that it is impossible to achieve greater returns than the market return without taking more risk. They key point is to identify those risks which owe investors positive expected returns, and capture them in a cost-efficient manner.

4. Diversification is your friend

The risk associated with one individual shareholding can be easily eliminated with diversification, and consequently the market does not reward investors with a return premium (extra return) for this non-systematic risk. When investors concentrate their investments they are increasing their risk with no added benefit of a higher expected return. Systematic risk, on the other hand, cannot be diversified away as it is the risk common to the market as a whole. The most prudent approach to minimise risk and maximise the probability of achieving a market rate of return is to hold the entire market. Likewise, global diversification is beneficial because it applies the same rationale as above.

5. Costs matter

The taxes, expenses and transaction costs incurred in the management of a portfolio have a direct impact on returns. All other things beings equal, we seek the most cost-efficient route to market returns. History has proved that investment success fundamentally comes down to these three principles:

– Faith in the future – it’s not possible to make successful investors out of fearful savers

– Patience – have a plan and ride it out – do the right thing and avoid doing the wrong thing (panicking out in a downturn)

– Discipline – when doing the right thing is to do nothing – stay with the plan and ignore the apocalypse de jour (white noise)

We recommend these 3 cornerstones to improve your chances of investment success:

– Asset allocation – ultimately your returns will come down to the mix between equities/shares and fixed interest investments/bonds. This is the key investment decision.

– Diversification – never own so much of one investment/asset that you can make a killing from it (or be killed by it). We diversify between different types of investment (bonds/market/value/small cap) as well as geographically

– Rebalancing – once a year we sell what’s doing well and buy what’s not – as the balance of your original portfolio and the risk factors within it change.

To find out more about how we can help you build a comprehensive investment strategy and set up a financial plan for your lifestyle, contact Wishart Wealth Management today. Call us on 0131 226 2012 for a conversation, or come to see us at our offices: 42 Charlotte Square, Edinburgh, EH2 4HQ, with no obligation.

The Financial Conduct Authority does not regulate tax planning and advice.