What Makes Us Different?
Most firms claim they are different, few truly are. Over my career I have worked for 3 wealth management firms prior to coming to Benjamin F Edwards and establishing Core Values Wealth Management. The firms I worked for were 3 of the largest firms in the financial services industry. While each firm had its own unique value proposition, when it came money management, I really didn't see any difference between them. Over the course of my career, I realized that these extremely large firms all shared the same Achillies heal. It is the fact that size actually works against you when it comes to money management. A great example of this is famed money manager Warren Buffet. For the first 40 years of managing Berkshire Hathaway, he averaged 20% annual returns. Around the year 2000 he warned his investors not to expect this to continue as the money he had to put to work had grown too large. True to his word, over the last 2 decades he has averaged less than 10%, even underperforming the S&P 500.
Our advantage can be partially explained by the flexibility we have regarding our ability to make significant changes to a portfolio when a “sea change” occurs in the market. What is a “sea change?” It is when there is a fundamental shift that will change the market moving forward. One of the most dramatic examples of this is when the economy shut down due to covid. It became obvious quite rapidly that certain companies would be winners (think consumer staples, technology companies, and pharmacutical companies) and certain companies would be losers (airlines, hotels, cruise lines). Very large asset manager simply can not divest large holdings and realign their portfolios to the new landscape quickly and efficiently. Their purchase and sale volumes can't be absorbed by the market.
Probably our biggest advantage is efficient access to the small cap universe. The market capitalization (total value) of all the companies in the Russell 2000 (the small cap index) is less than the market capitalization of 1 single company like Apple or Microsoft. For this fundamental reason asset managers with multiple billion dollars of dollars to put to work simply struggle to efficiently invest in these smaller companies. This segment of the market often goes on sale because during downturns the market often throw's the proverbial “baby out with the bath water.” We look to invest in the high-quality companies in this market. We like companies with low debt, good profit margins, large moats, and bright futures. Over time this has proven to be a very attractive area of the market. Historically, over long periods of time small caps have outperformed large caps and during the high inflation period of the 70's small caps were the best performer beating out the bigger stocks and even beating gold.