At Black Capital, we
believe that each client has different needs with respect to their
investments due to their goals, investment time horizons, and risk
tolerance levels, among other factors. Because of that, Black Capital
offers financial planning to its current and prospective clients.
During the financial planning process clients discuss their goals and
apprehensions concerning the investment process as well as complete a
risk assessment questionnaire. This allows us to serve each client's
needs differently, as well as gives the client input in his or her
investments. During the planning process clients have the ability to
direct investments toward or impose restrictions on certain securities
or asset classes.
While we advise clients
to all asset-classes (including but not limited to fixed-income
securities, equity securities, options and other derivatives, real
estate, and private equity investments), we focus on passive
investments such as indexed exchange-traded funds and other securities
which minimize cost because it is our belief that without extensive
research and extremely attentive active portfolio management, the
efficient market hypothesis will hold, and on average actively managed
portfolios will underperform passively managed investments.
At Black Capital, we
believe that market efficiency is a very real concept. While it may be
possible that there are viable strategies to consistently exceed market
returns, these strategies can bear excessive risk for individual
clients with goals such as retirement, or college tuition. We believe
that trading on traditional fundamental and news-based analyses results
in buying and selling securities in which news has already been
accounted for in the price. Because of this, Black Capital endorses
passive investment strategies in which we attempt to match market
returns while maximizing the Sharpe ratio of a client’s portfolio. We
accomplish this by purchasing combinations of low-commission ETFs from
different asset classes to lower the expected variance of the
portfolio. However, investors need to be aware that regardless of how
low the expected variance of a portfolio may be, investing in any
financial instruments – especially equity securities – carries risk of
loss, from slight to significant. While we specialize in low-cost,
passive investing, Black Capital also participates in more active
strategies. Clients using these active strategies need to be aware that
frequent trading can negatively affect investment performance through
increased transaction costs and brokerage fees.
ETFs (or exchange traded
funds) benefit clients by offering investors exposure to a wide variety
of assets while giving them instant diversification. This
diversification aids in eliminating an investor’s idiosyncratic (or
firm-specific) risk, however the investor is still exposed to
systematic (or market) risk. This market risk can still be very
damaging to a portfolio in the event of system-wide price drops.
Holders of lesser-traded ETFs may also bear, along with liquidity risk,
tracking (or basis) risk if the fund is not holding the exact
securities they attempt to track (this occurs when a fund attempts to
track one security by holding other, highly correlated securities).
Investors need to be aware of the risks these ETFs bear.