Rice Money Managers, Inc.

What is Your Investment Philosophy?

If you are now an investor, you quite possibly have a personal philosophy and a personal style. Often investors do not realize that their approach is only one of several possibilities. They believe they are following the only and proven way to stock market success. Actually how to obtain stock market success is not a simple or a settled question.

Individual Stock Selection

Many people believe that selecting a few stocks for the long run is the way to success. During a bull market this looks easy, because all stocks go up, leading to over-confidence. However, it is unwise to totally ignore the implications of Efficient Market. Doing better than the stock market by selecting stocks should be approached with a strong sense of humility; on the other hand, investors with large appreciated securities positions may almost be forced into this position by the capital gains tax cost of changes. We guide people in this kind of situation in our Long-Run Portfolio Management.

Actively Managed Mutual Funds

There are a wide array of actively managed mutual funds in which the fund managers attempt to add value in comparison to a benchmark or index, or even attempt to select the most promising asset classes and sectors a given point in time. Typically these funds charge higher fees than passive funds and they are often less tax-efficient. We do use such funds when we believe a particular fund has advantages that outweigh the disadvantages.

Passive Index Investing

This is the purest implementation of both Random Walk and Efficient Market. One simply buys a package of passively managed index mutual funds selected from their historical risk/reward characteristics mixed together according to your age, risk tolerance and financial needs. This kind of service is readily available from thousands of providers, in person and on line, and Rice Money Managers does not offer it, though we may use passive index funds as part of a strategy.

Sometimes the risk assumptions are questionable, in our view. For example, younger people are often encouraged to take more investment risk because they have more years to go before retirement. First, this assumes the risk/reward profile of the risky investment class is certain, which it is not; at best it is only estimated. Second, in general economic theory, less wealthy people should take less risk; in general, younger people are less wealthy and should take less risk, not more.

"Active" Management