Investment Philosophy

Lighthouse espouses passive investing based on the Efficient Market Theory (EMT).  This hypothesis assumes that stocks are always correctly priced, since everything that is publicly known about a stock is reflected in its market price.  There is overwhelming academic evidence that the collective wisdom of all market investors produces highly efficient markets that reflect fair pricing almost instantaneously upon release of any news—good or bad, especially in today’s electronic era—that might affect a stock’s price.

A passively managed portfolio is a proxy for the market as a whole because, based on the EMT, it is so difficult to outperform the market that it is cheaper and less risky to just buy the market.  A passive investor avoids attempts to “outsmart” the collective wisdom of the market.   This approach is more cost- and tax-efficient because there are less trades and, therefore, less transaction fees.

An actively managed portfolio, on the other hand, is built on selected investments and assumes the market is generally inefficient.  If the market were inefficient, then, clever individuals (or their clever brokers) could regularly exploit market opportunities when stocks are trading for more or less than they are actually worth.  These opportunities would need to be of sufficient frequency and value to cover the transaction costs and taxes from constant trading.

LFM’s investment philosophy:

• Objectivity

  We are an independent, registered investment advisory firm.  We choose the appropriate financial solution for each of our clients and are not restricted in the investments we recommend.
  

• Independence

  As a fee-only firm, LFM does not accept commissions.  Fees for services are our only source of compensation.  We are “product neutral” advisors—rather than transaction-based “product pushers”—and our interests parallel yours.
  
  

• Risk Management Through Diversification

  We build diversified portfolios to provide expected returns commensurate with your risk preference, financial needs, and financial condition.
  
  

• Low Expenses

  Using passive management, our investment methodology provides lower expense ratios, transaction costs, and turnover—and strictly avoids sales loads.
  
  

• Tax Efficiency

  Positioning asset classes appropriately, loss harvesting and prudent rebalancing are essential to tax efficient investing.