Investment Philosophy

Your Investment Advisor should not be a salesperson

Sales recommendations do not constitute financial advice. Some “advisors” make recommendations to sell investment and insurance products merely  to make a commission.  But, ongoing advice helps investors achieve their financial goals. This requires a prudent and well thought out  strategy that should be monitored and updated as needed, a process that should not be driven by sales products.

Successful portfolios are based on research and reasonable expectations.  Many investors attempt to guess which manager, stock or asset class will have best performance in the future.  That’s why so many have consistently failed.  Successful investors have a clear methodology and, of course, discipline.

How should I be investing?

For the past fifty years, modern finance has been exploring the most efficient methods of achieving market returns.  The findings have benefited individual investors who have put forth the effort to learn about them. At Trendline, we strive to achieve preservation of principal, capital growth and inflation protection for our clients’ investments.

Diversification of Risk

A successful investor is able to benefit from the types of risks that capture expected returns and diversifies away the  risks that have no reward.  Exposing yourself to too few stocks or limiting your portfolio to specific countries or sectors can threaten your portfolio.  Broad diversification across thousands of different companies, in different countries and industries is your best defense.  The greater the level of securities, the safer your outcome.

Structure of Portfolios

A group of securities that exhibit similar characteristics or behave similarly in the market is commonly referred to as an asset class. There are several asset classes represented in the global markets, for example small stocks, international stocks, bonds, real estate, domestic large stocks, etc., to name a few.  Each of these asset classes demonstrates average price movement that is different from the next. Investors can benefit by combining the different asset classes in a structured portfolio.  In this case, the portfolio as a whole is more valuable than its underlying parts.  The result is usually a higher expected return and a lower level of risk.

Management of the Portfolio

Structuring a portfolio around the ability to get paid for specific equity risk factors renders individual stock selection useless. Rather than analyzing individual stocks, investing is simplified down to the decision of how much stock to hold versus bonds, and how small or large, and how value- or growth-tilted the stocks should be.

Most fund managers focus on the ongoing trading of individual securities while index fund managers simply hold the exact securities found in its appropriate market index.   Index mutual funds and exchange traded funds (ETFs) offer lower transaction costs, minimal asset class drift, and greater tax efficiency.  Passively structured funds, however, endorse the idea of an efficient market, but are not held captive to the exact breakdown of a relative index.  Instead, the funds can structure strategies based on scientific evidence rather than on speculation or commercial indexes. For example, small cap strategies can target smaller stocks more consistently while value strategies can target value returns with greater focus.

Portfolio Modeling

A pioneering study by renowned academics, Eugene Fama and Ken French, suggests that three risk factors: market, size and price dimensions explain 96% of historical equity performance.  This model explains the fact that two particular types of stocks outperform markets on a regular basis: value stocks and small capitalization stocks.   While portfolios with exposure to small and value may have different risks than the market as a whole, they are not necessarily higher.

Deciding on the degree that your portfolio should participate in the three risk factors is the challenge for the investor.  By minimizing income taxes, investors retain more wealth to help meet their goals.  We exercise care in the appropriate placement of investments within taxable and tax-deferred accounts. For example, we generally place the most tax friendly and tax-managed vehicles in taxable accounts and higher turnover mutual funds in tax-deferred accounts. However, tax considerations do not dominate our portfolio management process.

Managing Risk

Investors get paid for accepting market risks.  But taking calculated risks is a far more effective way to achieve your desired returns.  Risk is a real threat to wealth accumulation.  Investors who hold concentrated portfolios are bearing far more risk than justified by the expected return. Concentrated issues include individual stocks, industry, sector and geographic concentrations. There is no separately priced risk element for any of these concentration issues, and no additional return to be expected by bearing these risks.  Our primary goal as your Advisor is to maximize your expected return, however, it must be commensurate with the specific risk you are willing to accept.


Trendline Financial  Solutions is a fee only Financial Planner Firm offering Financial Planning and Investment Management with offices in Southold, Great Neck and West Hempstead, NY. We offer Trusted Financial Advice to Nassau County and Suffolk County on long Island.