Stock Investing

Over long periods, stocks have enjoyed very good returns, but offer substantial risks over short periods.

Beginning in 1926 and ending in 2010, large U.S. companies have returned an annual return of 9.87 percent.  Of course, those returns haven’t been earned in a straight line – returns have been as high as 53.99 percent in 1933 and as low as -43.34 percent in 1931. 

Ultimately we believe that stocks will continue to deliver the highest returns because stocks represent ownership in businesses.  However, we know that stocks can be very risky since the value of these businesses is difficult to assess and perceptions about value can change rapidly.

Top Down

Given that stock investing has the most potential to earn substantial returns but can also result in the greatest losses, we believe that it is important to own stocks with a long-term time horizon and diversify across asset classes, sectors, and individual securities. 

Once the asset allocation is determined, the Investment Committee over or under-weights sectors like healthcare, industrials, technology, etc. based on macro-economic themes like demographics, government policy, and inflation expectations. 

Within each sector, we seek companies with the best relative values.  For example, if we decide to overweight energy stocks because we believe that energy prices will rise, we search for the best energy companies that can take advantage of higher energy prices at the most reasonable valuation. 

Quality

We believe that it is essential to invest in high quality assets.  When we invest in stocks, we are taking ownership in a business.  As owners, we want to own high-quality businesses that will deliver returns to shareholders by growing their intrinsic values, engaging in share buy-backs, or distributing dividends.

Our fundamental analysis includes a detailed review of the balance sheet, income statement, and statement of cash flows.  In general, we are looking for companies with established competitive advantages as demonstrated by their financial strengths, profitabilities, and growth at both their top and bottom-lines. 

Value

Of course, it isn’t enough to simply find good quality businesses.  It is critically important to pay reasonable prices for stocks.  Ownership of the highest quality stock will result in poor performance if the purchase price is too high.  Where the financial health of a stock is relatively easy to determine, figuring out the right price to pay is extremely difficult and requires substantial judgment.

We expect stocks to serve as the growth engine of an investment portfolio.  We seek to create value for our clients by finding high quality investments at reasonable prices.  This combination should result in relatively good results over a full market cycle.

Since 1999, Acropolis Investment Management has been a St. Louis based private wealth management leader. We have grown to manage over $500 Million in private client assets. To learn more about our fee-only financial planning services, please contact us at 1-888-882-0072.