Investment Management

Financial security comes from reducing the risks inherent in retirement finances. We help find the right products and strategies to reduce or eliminate risks of not achieving your financial goals. Our investment strategies address two of the most important risks:

• Inflation’s effects on living expenses
• Investment returns falling short of expectations

Berkeley Investment Advisors invests in undervalued U.S. and foreign securities where we can leverage our fundamental valuation expertise, our knack for understanding the financial impact of economic trends, and our ability to synthesize and quantify other qualitative factors affecting long-term investment values.

Unlike mutual funds, we will act to reduce market risk and preserve capital when conditions indicate that expected returns don’t justify the risk of losses. For example, at the beginning of 2008 when we determined that a recession was likely to push the overall stock market down 20-40%, we shifted money to hedging positions to protect against market wide down moves. (We used inverse index exchange traded funds to implement this).

Intelligent Investment

Academic studies in the field of behavioral finance show that, on average, investors make sub-optimal decisions relative to alternative passive strategies. Generally passive strategies are those where you buy and hold a well diversified basket of stocks. In fact, actively managed mutual funds, on average, lag the overall market return. Thus, it is argued, the best investment strategy is to buy an index fund so as to guarantee you won’t under-perform the market. On average this should be better because (in theory) it eliminates the source of investor errors and biases: emotions. Unfortunately it also eliminates reasoned analysis at the same time. So you give up the upside to eliminate the downside. There is a better way: take out the emotions without turning off the other half of your brain.

There are investment managers who can consistently outperform the market. The problem for academic studies is that these managers are hard to identify with statistical methods and their performance generally does not fit neatly into any existing academic theories. (Any professor who discovers a way to predict superior performance is quite likely to drop out of academia to set up a hedge fund to exploit his findings). If you can find such a manager you can do much better than a passive strategy.

For us, the path to superior performance is clear, we focus on analysis and expected long term results to guide our decisions. Our investment time horizon is long and our past results from reasoned investment decisions have been excellent. This inspires the confidence to resist the influence of short term psychologically driven volatility which has no connection with the fundamental factors upon which we base investment decisions.

What it Takes to Consistently Outperform the Market

Lots of people earned very high returns during the bubble years and they thought themselves brilliant investors. They were not. It took a bear market to show that they had been lucky and, in fact, had no investing skill or viable long run strategy. As an investor, Ray Meadows has a lot going for him: 2.5 degrees in business, 1 in economics, a C.P.A. and C.F.A., plus years of banking and Wall Street experience. In considering all the possible reasons for Rredarroway’s investing success, 3 things stand out from the rest:

The last of these deserves a bit more explanation before we illustrate how these competitive advantages tie in to investment strategies. We’re talking about understanding the stock or bond performance implications of the news and other non-financial information. Most importantly, this is about accurately identifying those companies with superior business models and strong management. (Of course it’s also important to identify those companies with poor prospects and weak management in order to avoid them.) Other qualitative factors that come to mind include: accounting issues/scandals, insider transactions, politics, mergers and acquisitions.

Investment Philosophy

We will implement several different strategies on behalf of our clients but the common theme of all is to find market niches where returns are high relative to the risks because of a lack of understanding or attention on the part of the big institutional players in the market. Ray is a value investor. There are lots of great companies out there but what makes a great investment is a good company selling at a great price. Ray looks for companies selling for substantially less than his estimate of what they are worth. Ray takes a long term view of investments; he does not sell because a stock moved down or buy because a stock moved up. Transactions are based on expected future returns not the past, with a goal of earning 11% or more per year while taking on very little risk of principal loss over a 5 year investment horizon.

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