The Investment Philosophy of Prudent Investor Advisors, LLC identifies the problem and the solution to the problem.

The Problem:

Nobel Laureate Harry Markowitz, the father of Modern Portfolio Theory, identifies the problem faced by all investors: decisions about portfolio selections are made under uncertainty. This uncertainty becomes obvious when an investor, after surveying a long list of investments available for inclusion in the investor’s portfolio, realizes that it really has no way of knowing today which investments - going forward - will turn out to be superior performers and which ones will turn out to be inferior performers.

The root cause of the uncertainty involved in making portfolio selections is the constantly changing volatility in the prices of investments. For example, a stock worth $25.00 today was worth $22.75 yesterday (or five minutes ago) but can be worth $21.25 (or $31.25) tomorrow. The reason why the prices of investments are constantly changing, of course, is that they’re subject to the impact of unpredictable future events - otherwise known as “news.” This makes changes in the prices of investments random and therefore unpredictable.

Many investors - including stockbrokerage firms, trust companies and other investment advisors – don’t acknowledge this fundamental problem. Instead of attempting to reduce this uncertainty, they focus on increasing return. Such investors believe that the best way to maximize return is with an investment approach called “active investing” by which they attempt to “beat the market.” This approach takes a number of different forms.

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