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Different Managers, Different Styles and What it Means to You

Investing is easy right?

The funny thing is that there are two answers to that question.  Yes it is easy.  There are many tools out there at your disposal these days that are specifically designed to make investing simple for you.  And yet, we know from our own experiences that it’s not that easy at all.  At LGK Wealth Management, we believe that one of the main reasons for this is due to sheer volume of choices that are available to investors.  There simply are too many to choose from. 

Consider a restaurant with a huge menu.  How many times have you looked at a menu of amazing looking food options and been unable to decide on what to order?  Perhaps you order one thing, but change your mind at the last second?  Sound familiar?   We think investing can sometimes feel this way.

But what do you get when you go to a restaurant like Swiss Chalet?  Do you even need to look at the menu?  Just like Swiss Chalet, we try to keep our menu of investment strategies small and simple.  But that doesn’t mean we sacrifice on the quality of our portfolios.  In fact, our process is rigorous in terms of how we evaluate the managers who we ultimately bring on board to manage your money.

Today, we’d like to tell you about three different investment styles we look at during our process of creating a manageable menu of investment options.

Let’s start with Value Investing.  When you think of Value investing, think of famous investor Warren Buffett.  Value investors look for investments that can be bought for cheaper than they are worth.  Sometimes the broad market punishes a company that has made a mistake or has had some problem that has caused their profitability to slide.  Value investors attempt to figure out whether the market has overreacted and whether that problem or error is a one-time situation or an ongoing challenge.  They are often called the original “buy low sell high” investors.  Value investing requires patience because sometimes a manager’s thesis about a company’s value can take longer to pan out than even they expect.

The next style we look at is called Growth Investing.  Thomas Rowe Price, Jr (T. Rowe Price) was one of the early growth managers.  He attempted to focus on well-managed companies with the potential for superior earnings growth.  In general, those investors and managers that we call “growth managers” tend to believe in buying companies that have earnings growth that is above average when compared to their peers, or even the overall market.

Finally, we’ll look at Momentum Investing.  Probably the most famous Momentum Investor of all time is Richard Driehaus, a man who in the year 2000 was named to Barrons magazine’s top 25 All-Century Team.Momentum investors and managers look at trends and attempt to capitalize on them.  Their belief is that once a trend is found, it tends to continue for an indefinite period.  Their motto could be defined simply as “buy high, sell higher”.  There are a number of different trend indicators that traders use.The simplest involves drawing a line between two points on a price graph.  If the line slants up, the trend is up, so the stock is a good buy.  If the line slants down, the trend is down, so the stock is one to consider selling.

There are no right answers as to which of these is the best choice of strategy.  They will tend to perform well at different times.  The challenge of course, is that when one of these strategies goes through a stretch of poor performance, there’s temptation to abandon it and chase the winning strategy.  This is why we look at all three of them for our portfolios at LGK Wealth Management.  As with our Swiss Chalet analogy above, this eliminates your need to look the menu.  

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