Eunoia’s General Market Beliefs

• Reversion to the mean is real and can (generally) be relied upon when making long-term investment decisions
• During occasional periods of investor irrationality, reliance on reversion to the mean fails and alternative investment means should be sought
• As there is no proven method for determining when mean reversion works versus when it will fail, an investment approach which includes both tactics, and tilted toward the ones with the highest probability of success, is usually best
• Value generally outperforms growth, but not at all times or in all market scenarios
• Growth generally counterbalances value
• The crowd is often wrong and going in the wrong direction

Eunoia’s Asset Allocation Beliefs

• Long-term asset allocation can boost returns by taking advantage of the most profitable risk/reward opportunities available at the time
• Combining passive and active strategies allows broad market exposure, lower costs and higher manager focus on adding alpha
• Asset allocation should be a trickle-down approach
  • Allocate all assets
  • Allocate by type of account
  • Allocate individual portfolios
  • Allocate within each asset class
  • Allocate to most favorable risk/reward stock, bond or other asset
  • Verify final allocation does not break overall or individual portfolio objectives
  • Repeat

Eunoia’s Equity Beliefs

• Earnings and earnings growth are the primary drivers of equity returns
• What a company does and how they do it matters to earnings and earnings growth
• Diversification along size and style axes is better than single broad market exposure
• Historical, competitive and absolute context is required to form a complete picture

Eunoia’s Fixed Income Beliefs

• There are three primary drivers of fixed income returns
  • Inflation/deflation
  • Credit quality
  • Duration
• Diversification along duration and credit quality axes is better than single broad market exposure
• Historical, competitive and absolute context is required to form a complete picture

Eunoia’s Tactical Allocation Beliefs

• Periodic opportunities for outsized returns based on market events, investor behavior and/or global events occasionally happen and can be exploited
• Once an opportunity is identified, timing of entry and exit becomes the most important consideration
• Timing is by far the most difficult investment decision

Eunoia’s Risk Beliefs

• By its nature, investing entails risks
• Market returns are asymmetric
• Investors have different risk tolerances (and goals) and therefore should have portfolios built specifically for their risk/reward profiles
• Some risks can be managed through prudent diversification
• Some risks must be accepted in order to achieve investment objectives

Eunoia’s Tax Beliefs

• Taxes matter to most investor’s returns and should be considered
• With very few exceptions, investment decisions override tax considerations

Eunoia’s Cost Beliefs

• Trading, administration, management, etc. costs are a necessary evil which lower returns and should be minimized whenever possible

Eunoia’s Trading Beliefs

• Patience is a virtue
• Efforts should be made to minimize unnecessary turnover
• One should not shy away from making trades in order to exit a poor or enter a good investment opportunity

Lessons From The Masters

Mark Twain has been quoted as saying, “History does not repeat itself, but it rhymes.” Eunoia agrees with the great American writer and believes that we should learn from history and from those who have successfully navigated it. Therefore, Eunoia makes an effort to study the market and how it rhymes with historical periods. Eunoia also takes the time to study the methods and thoughts of those who have succeeded before. Below, we provide a handful of quotes from the masters of the markets, and humbly add one from Eunoia’s founder.

Buy Groceries, not Perfume

“If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.”

– Benjamin Graham

Understand the Company

“If you’re prepared to invest in a company, then you ought to be able to explain why, in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.”

– Peter Lynch

Debt be Damned

“He believed in cash. He did not like companies that had a lot of bonds.”

– Irving Khan

Never forget to Account for the Psychology of the Investor

“You can have an extraordinary difference in the price level mainly because not only speculators but because investors themselves are looking at the situation through rose colored glasses rather than dark blue glasses.”

– Benjamin Graham

Quality and Value

“We try to own common stocks of high quality companies with good earnings growth prospects… we try to buy these companies at prices we believe underestimate their real value.”

– William Ruane

Buy Cheap

“If a stock is cheap, I start buying.”

– Walter Schloss

Market Forecasting

“Nobody knows what the market will do.”

– William Ruane

Don’t Follow the Market

“Lemmings always lose.”

– Irving Kahn

Be Willing to Buy Something No One Else Wants, Cheaply

“… he talked about risk based on the fact that he wanted to buy something at less than 50 cents on the dollar. He just wanted to buy something that was undervalued.”

– Edwin Schloss, son of Walter Schloss

Comb Through Balance Sheets

“I remember years ago that they’d (Ben Graham and Walter Schloss) look through the manuals and tear sheets, it’s not so different from today, for years my dad and I, we’d go through Value Line and we’d look and try to find the stock that was the best value within each industry group.”

– Edwin Schloss, son of Walter Schloss

Think Long Term

“Spinsoza said you must look at things in the aspect of eternity.”

– Marshall Weinberg

Understand the Company

“Behind every stock is a company. Find out what it’s doing.”

– Peter Lynch

Fundamentals… and Forget the Rest

“… just be interested in fundamentals and forget the rest, and have patience.”

– Marshall Weinberg

Timing Can Be Elusive

“Knowing what is going to happen is not the same thing as knowing when it will happen.”

– Richard Suvak