As you have heard on many occasions, we don't pretend to know good stocks from bad stocks. We don't pretend to know when the market is going up or when it is going down. We refrain from making predictions and prognostications and we do not believe emotions should guide investment behavior. Instead, our efforts are guided by certain core beliefs about markets, and diversification based on decades of academic research and empirical evidence.1
Over twenty years ago, our firm embraced this evidence-based investment philosophy. At the time, we were pioneers. Today, it is a prominent investment strategy used institutionally. Here are some recent examples of why we believe picking, choosing, and hoping is a futile investment strategy.
Would You Have Picked The Winners?
- Coca-Cola is fighting 12 consecutive years of soda consumption decline. Its stock is at an all-time high.
- Tesla is changing the world, and orders for its new car are off the charts. Its stock is lower than it was 18 months ago.Cigarette consumption has dropped 44% since 1981. Altria stock is up 71,000% since 1981.
- WalMart's net income has tripled since 2000. Its stock has lost 1.5% since 2000. Apple has earned almost a quarter trillion dollars of profit since 2012. Its stock has barely budged.
- Amazon's profits round to zero since 2012. Its stock has tripled.
Would You Have Bet Correctly On The Markets?
- 2009 was one of the worst years for the economy in a century. The market rose 27%.
- 2015 was a good year for the economy. The market rose 1%.
- Brazil's economy is a disaster. Its stock market is flat over the last two years.
- America is enjoying the longest streak of low unemployment claims in four decades. Its stock market is also flat over the last two years.
Source: Performance vs. Outcomes. The Motley Fool. April 13, 2016.
1 TFO-TDC's investment philosophy is based on the research of Dimensional Fund Advisors (DFA) and Nobel Prize winning laureate Eugene Fama (2013) and Ken French. Fama and French are not associated with TFO-TDC, LLC. However, through the use of DFA mutual funds, TFO-TDC uses investment strategies guided by French/Fama's academic work and five-factor model.
Advisory services provided by TFO-TDC, LLC.