"Economic agents are human, and economic models have to incorporate that." - Richard Thaler (recipient of the 2017 Nobel Memorial Prize in Economics)
At Noble Wealth Partners, creating investment principles centered on four key pillars is a MUST: Managing downside risk, Utilizing time-tested principles, creating a Systemitized process, and Tailoring a portfolio toward your goals and objectives. Our clients are unique, with different backgrounds, income, tax situations, and investment objectives. Treating clients as individuals is a core belief of our firm and it shapes our rationale to manage custom portfolios instead of placing clients in a one-size-fits-all solution. This enables us to focus on your goals, instead of tracking arbitrary benchmarks that may be irrelevant to your financial needs. We keep you focused on long-term results during periods of market turmoil, so you can pursue your lifelong dreams.
A Goals-Based Investment Approach
In 1990, Harry Markowitz won the Nobel Memorial Prize in Economic Sciences for the Harry Markowitz Efficient Frontier Model he put forward in 1952. This model produces portfolios where returns are maximized for each level of risk. The Efficient Frontier Model has been used for decades by many professional investors as a foundation of their investment advice. The issue stems from the fact that the Efficient Frontier Model relies on the assumption that investors are rational. The acceptance of this theory has led many investors to track arbitrary benchmarks that may be irrelevant for their financial objectives, since the benchmarks do not reflect the human element of the investment equation.
Pundits are beginning to accept the notion that individual's may not be investing rationally, and human behavior may play a larger role in the outcome of portfolios. In 2017, Richard Thaler won the Nobel Memorial Prize for his notion that, "Economic agents are human, and economic models have to incorporate that." If this is true, we should focus on investing in a manner consistent with pursuing the goals of our clients. At Noble Wealth Partners, we build portfolios designed for your financial goals, instead of tracking a fickle benchmark. We feel this approach will give our clients the best chance of financial success.
For clients that qualify for this service, we use our proprietary tool to divide our client's portfolio assets into buckets focused on investing toward designated objectives in a tax-efficient manner. This allows us to focus on mitigating the risk that our client will be forced to sacrifice their lifestyle. Once this is accomplished we can focus on their dreams and improving their lifestyle.
Sample Goals-Based Portfolio
The Investment Process
Noble Wealth Partners uses a systematized process that is both qualitative and quantitative to provide our clients with investment solutions to reach their goals. Some investment managers prefer to examine the global investment landscape and macroeconomic factors using a top-down approach (i.e. the 30,000 foot fly over) before looking at each individual security. Other managers promulgate that alpha (or excess return) is obtained by analyzing each individual security using bottom-up process (i.e. feet on the ground) prior to looking at the big picture. At Noble Wealth Partners, these decisions are not mutually exclusive. The two approaches are reconciled through a proprietary portfolio construction process to include a combination of the best top-down and bottom-up investment opportunities, while remaining cognizant of the risk objective for each client.
Formulating Our Capital Market Assumptions: First, we establish capital market assumptions (i.e. our expected risk and return inputs of each asset class) given the current investment landscape. In this first step, we analyze the economic environment, valuations, market sentiment, and geopolitical events to determine the areas in the market we expect to deliver attractive returns while accounting for risk.
Evaluating Areas of Opportunity: We use a macro-thematic approach to target themes that may be rewarded by the market. Using thorough diligence as our guide, we seek to allocate to the countries, sectors (e.g. technology, financial companies, energy, etc.), and asset classes (e.g. large companies, small companies, blue-chip companies, etc.) that are expected to have attractive risk and return profiles.
Portfolio Construction: Client preferences are used to slightly alter market capitalization weights, this forms our strategic asset allocation (our portfolio weightings if we are neutral on all asset classes). From the strategic asset allocation, we modify the weights to reflect opportunities in the market, potential risks, relative valuations, the macroeconomic backdrop, market breadth, and any pricing signals. The output from the modifications above, is our tactical asset allocation.
Vehicles to Achieve Our Tactical Asset Allocation: In this step, we determine how we would like to achieve our desired exposures from our tactical asset allocation. This involves deliberation between passive management (i.e. indexed products), active management, separate accounts, and individual stocks or bonds. These decisions are dynamic as different market environments will justify the use of different vehicles.
Our Proprietary Process: Our proprietary qualitative and quantitative process determines the individual securities that may offer the best risk-adjusted returns for clients. In this proprietary process, each security is scored on a number of metrics, including:
Subjective Outlook - This metric scores our view on a security and the respective position of the company within their industry.
Analyst Views - Scores the Wall Street consensus including any changes in analyst ratings.
Valuations - Most of our clients are focused on their long-term goals and a metric that correlates well to long-term performance can be useful. A stock’s price relative to what it should be worth has proven to be a strong indicator of future long-run performance. However, a valuation-based approach rarely works in the short run (1 - 3 years).
Fundamentals - This score measures how well a security is positioned. It also captures the company’s strengths, weaknesses, opportunities, and threats (Porter’s Five Forces).
Technicals (chart patterns) - Measuring the durability of the price movement. Technicals can be a good leading indicator as they spot market changes ahead of inflection points where fundamental analysis may fail.
These categories are weighted based on their relative importance to the investment process. The output is our best ideas and the top five securities are bought. The portfolio is diversified around these positions using a combination of active and passive management. Securities are sold if their ranking drops out of the top half. If this occurs, that security is replaced with our top ranked security.
Portfolio Management: Much like driving, our portfolio management is a forward-looking process. While driving, it is dangerous to look in the rear-view mirror too long. Investing is no different, so we do not dwell on past returns and instead focus on the opportunity that lies ahead. In theory, efficient portfolios (portfolios maximizing returns for each specified level of risk) are constructed by combining only the portfolio assets (and asset classes) that have low correlations with one another. In other words, own one asset that goes up while another asset may be falling. At Noble Wealth Partners, we seek to build efficient portfolios to potentially mitigate the impact market fluctuations will have on our client's portfolios.
Monitoring Your Results: The world is constantly changing, and your portfolio should too. At Noble Wealth Partners, we rigorously analyze the portfolios, and the investments within, to make sure we are comfortable with the composition of the portfolio and performance of the investments. We constantly repeat this investment process to equip you with a detailed portfolio capable of navigating the present market environment.
The most important part of this process is that our performance allows our clients to pursue their investment goals. If our clients are at risk of falling short of their goals, we need to revise the investment strategy, or we need to fix the financial plan.
All indices are unmanaged and may not be invested into directly. No strategy assures success or protects against loss. Investing involves risk including loss of principal. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.