How does Whites IFM differ from traditional financial advisors?
Most importantly, Whites IFM is wholly owned by its management. We have no cross ownership, affiliation, association or formal arrangement with any other financial organisation. This means we are not beholden to any banks, stock brokers, fund managers or administration providers. We are not paid to promote or support any third party products or services. Our advice is therefore free of any conflict of interest or potential for conflict of interest.
Secondly, our remuneration is structured so that it is not biased or influenced by any particular advice we give. For instance, sometimes the best advice for a client at a point in time is to do nothing – their portfolio may be well constructed such that there is no point in buying, selling or taking any other actions. In such a case we are happy to advise accordingly. We have no incentive to suggest any particular trade or activity.
Thirdly, the investment advisors at Whites IFM come from solid financial markets backgrounds and, as such, are well qualified to advise clients on investing directly in equity and debt securities. This can lead to considerable savings for the client by not incurring the fees and expenses associated with managed funds and structured investments.
What is “value investing”?
Value investing refers to, in the first instance, understanding the essential difference between “value” and “price”. The value of an asset, be it a commodity or a company, is a measure of its intrinsic worth. The price of an asset is the amount that a buyer will pay for an asset at any given point in time. Value by definition is relatively stable in the short term but can change over longer time frames. Price is often very erratic and can move significant amounts in very short periods of time – as any observer of the stock market can testify.
Investors are concerned with value; speculators are concerned with price. A value investor buys shares in a company because they have identified a business in which they would like to be a part owner. A speculator buys shares because they believe the price is going up – that is they hope to be able to subsequently offload those shares to another speculator who in turn thinks the share price will continue to rise. Value is more closely aligned with the economic forces of supply and demand; price is associated with the emotions of greed and fear.
Can direct investing outperform the professional fund managers?
Certainly. Clients who follow the value investing methodology can receive medium / long terms return that are superior to most professional fund managers. By investing directly you start each year ahead of investors in managed funds by saving the fees and costs charged by those funds. A professional fund manager needs to outperform your directly invested portfolio by 1-2% per annum each and every year just to break even with your performance. Additionally, direct investing gives you much greater flexibility and control over where your funds are invested.
Why are you not particularly concerned with share price fluctuations? Doesn’t this impact my net worth?
The important distinction we make is that between investors and speculators. Our approach is to help clients become investors in the true sense of that term – we are not in the business of encouraging speculation. The value investing approach concentrates on medium to long term income production and capital preservation. Short term fluctuations in the value of securities are “noise” in the market place and do not impact on the investor unless those securities are actually traded. Portfolios set up in accordance with our model are designed to have a sufficient buffer of cash and “cash equivalents” such that equity securities need not be sold to generate cash flow in most circumstances (eg unless a client wished to liquidate most or all of their portfolio at one time). Just as home owners should not be unduly concerned about day to day valuations of their house, holders of securities bought for medium term investment should not be distracted by short term price fluctuations. Ben Graham outlined his view on risk and price volatility in his book “The Intelligent Investor”- please click here
What if I just want a limited amount of advice on my financial affairs; eg how to manage my own SMSF?
Whites IFM provides a range of advisory services that can be tailored to individual client requirements. Fees charged are directly related to the services provided. Examples of limited advice would be portfolio audits and construction, the provision of a financial plan and the establishment and management of a client’s SMSF.
We firmly believe that all investors should fully understand the products in which they are investing. Too may people have lost money over the years by entering into financial schemes or buying structured products or securities that are complex and poorly explained. Our consistent and overriding advice to clients is not to invest in things you don’t understand. If you can’t explain a potential investment to someone else in simple terms then you should stay well away. To help investors navigate through the financial maze, we have included a glossary (published by Kaplan Education Pty Ltd) that explains many of the terms you will come across in the investment literature. Whites IFM is happy to assist new and seasoned investors alike in managing their financial affairs.