Scarsdale's Investment Philosophy
Goals: We believe that individual investors should align their investments with their financial goals and life objectives, rather than seek to maximize their returns by speculating in the markets. While large institutional investors might pursue a total return strategy in risky investments, individuals should let their financial goals and life objectives determine their investments.
Safety and Cash Flow: Investments for individuals should provide both relative safety and a predictable cash flow. An individual's investments should not interfere with his sleep at night. High quality individual bonds should be considered the core investment because they will result in a predictable cash flow, the reduction of investment risk and enable the completion of a predictable financial plan.
Diversification: It was demonstrated in the crash of 2008-2009 that seemingly diversified assets move in synchrony in severe market downturns and only high-quality bonds held their value.
After-Tax Returns: All investments should be compared on an after-tax basis and only after all costs of investing are considered. High taxes and high investment costs will always substantially reduce returns.
Stocks are Speculations: Past investment returns should NOT be relied upon to project future returns. The world has changed and so will investment returns. Returns on all investments other than bonds are unpredictable. High quality individual bonds will come due at their face value and provide predictable returns and cash flow. All investment returns should be viewed on a risk adjusted basis.
We consider stocks and most investments other than individual bonds to be speculations because the returns on them are not predictable. Speculations:
- May or may not outperform bonds.
- Will have more risk and volatility than high quality bonds.
- May be subject to high taxes, transaction fees and bad timing.
The risk of a severe market decline for speculations increases, rather than decreases, as the investment period lengthens. Rising yields invite speculators who are quick to sell, turning a snowball into an avalanche.
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