From EdgePoint’s outset, we’ve been redefining investing to provide an alternative to the standard fare of mutual fund companies that don’t seem to have their priorities straight. This includes turning “industry speak” on its head so that it better reflects our beliefs and the particular way we put investing into practice. Learn these EdgePointisms to get to the heart of who we are and how we can help you.
Active management – Using proprietary insights to invest in a way that looks different from the index. The antithesis of dumb money.
What’s worse than index investing in our opinion? Closet indexing investing. That’s where a fund purports to be actively managed – and you’re charged higher fees for it as a result – but actually simply mimics its benchmark. Don’t allow yourself to be misled. Always understand what you’re paying for.
AUM (assets under management) – A commonly used success metric in our industry that you won’t see us referencing unless we have to.
When it comes to mutual funds, bigger is definitely not better. Beyond a certain asset level, minimal cost savings are to be had from a bigger mutual fund compared to a smaller one. But because our industry’s goal is to get assets in the door, there’s a drive to favour and promote big funds.
We use investment results as our benchmark for achievement. Ultimately, more important to investors than our asset growth is how much money we’ve made them.
Co-investment – Tells you whether a fund manager has “skin in the game” alongside you. Would you eat someone’s cooking when they won’t eat it themselves?
When all parties (and not only you) have real dollars on the line, a clear alignment of interests is created and your fund manager is further incentivized to do their job well and be accountable for it.
Company creed – Our nine commitments to investors and their advisors, who we consider our investment partners. Commitment #1: We will put you first in all business decisions.
We don’t try to be all things to all people and urge you to follow suit. Seek a meeting of the minds with whomever you invest your money with – this will go a long way in ensuring your continued satisfaction.
Cymbria – Our affiliate, an investment corporation created with the objective of providing shareholders with a way to participate in the growth potential of a concentrated portfolio of global equities and an investment in EdgePoint.
Shameless plug! Find out more at www.cymbria.com.
Diversification – Owning a collection of different business ideas.
Conventional wisdom says you should buy stocks in many different companies across many different industries in order to be “diversified.” The thinking is that by spreading your luck across as wide a swath of the investment universe as possible, you diminish the likelihood that any one business or sector will bring down your entire portfolio.
Lots of colours on a pie chart doesn’t mean an investment is properly diversified. Breadth of holdings alone is no guarantee of suitable diversification, and sector or geographic distributions aren’t either. We believe smart diversification boils down to holding a portfolio of uncorrelated business ideas.
Dumb money – Investing based on an approach that doesn’t consider business fundamentals, identify unique insights into why an investment might have the potential to be bigger in the future or meet with management to know how a company is being run.
Passive investing is an example. Index investors follow the herd, buying more of expensive stocks and less of cheap ones because that’s how indexes work. Sounds like a pretty dumb way to invest if you ask us.
EdgePoint Academy – Your online resource for becoming a better investor.
We developed EdgePoint Academy to address what we saw as a dearth in quality investor education material. Our Academy doesn’t try to sell you anything except a clearer view of the world of investing, in language anyone from a 5th grader to an industry pro can grasp.
Internal partners– Us, the people working for you. Also known as EdgePointers.
Believing that culture begins with a business’s owners, we offer our employees the opportunity to buy a stake in EdgePoint. We purchase our shares rather than have stock or options given to us. That way, we risk our own money as opposed to just a satisfactory capital gain. Thinking and acting like owners is another area that sets us apart.
Investment commentary – Insights direct from our Investment team on how they approach managing your money for the long term.
A lot of fund companies churn out investment commentaries that have been created by their marketing, product and legal departments. Their portfolio managers, the very people responsible for investors’ money and who hopefully have the best understanding of what’s going on in the products they oversee, are left out of the process, leaving investors with little more than second-hand information.
Investment led – The opposite of marketing and sales driven.
An investment-led company concentrates on building wealth and doing right by investors. Marketers spend more time and effort gathering assets and building their business than investing the money they’ve already gathered.
Investment partners – Our investors.
We believe that investors and their advisors should be treated as our external partners – as real people and not just another number.
JOMO (joy of missing out) – The serenity eventually experienced from not looking like an index.
We believe in the value of active management…when it’s practiced properly. Fact is, you can’t beat an index when you look exactly like it.
Long term – We invest in businesses with the mindset that they’ll feed, shelter and clothe our families (and yours) for the next 30 years.
Long term for us doesn’t mean the next quarter, year or even decade. That’s because we view stocks as more than pieces of paper – we treat them as enduring ownership interests in businesses.
Marketing – Works against investors to separate them from their hard-earned savings.
‘Nuff said.
Macromatosis – A diseased state of mind caused by an intake of macroeconomic news.
Worldwide reporting on topics like sovereign debt levels, high unemployment or slowing economic growth infects the minds of investors so that they spend too little time understanding the underlying fundamentals of individual businesses. Most macromatosis sufferers don’t know the value of what they own and are therefore incapable of acting rationally if, and when, the price of their asset changes. The end result of macromatosis is emotional investing, which causes people to make decisions that negatively impact their future wealth.
Passive management – See dumb money.
Point B – Your investment savings goal.
All investors start at Point A with the hopes of reaching their Point B. One reason our industry is so successful at selling the wrong thing at the wrong time is that investors tend to focus on all of the noise around Point A – the predictions, obsessive search for trends and intense scrutiny of day-to-day market activity. Getting caught up in these short-term distractions causes investors to make bad decisions that result in them failing to achieve their Point B.
Portfolio manager – A skilled investor with the right temperament, the ability to think independently, the natural curiosity necessary to search out new ideas and the commitment to embrace the thorough research required to uncover opportunities the market doesn’t fully appreciate.
Our industry tends to compensate and reprimand portfolio managers on their short-term performance, basically what they did last month, last quarter or last year. Nor does it demand that portfolio managers eat their own cooking by investing in their own products.
We believe portfolio managers should be rewarded primarily based on their long-term results. What’s more, the lion’s share of our Investment team’s wealth is in our portfolios.
Proprietary insight – A unique idea about how a business can be bigger in future that gives you an edge over other investors.
Investors seldom have a unique outlook on the businesses they own. When investors base investment decisions on common knowledge, their reward is almost always subpar performance.
Pro tip: The next time someone tries to entice you with an investment idea, ask them what they know about the business that isn’t already reflected in its share price.
Relationship manager – An internal partner tasked with continually improving our rapport with advisors and their investors, namely you.
At other fund companies, this role is assigned to salespeople. Salespeople are intent on making a commission whereas our relationship managers are responsible for cultivating meaningful long-term partnerships.
Risk – Permanent loss of capital (and NOT volatility).
Real risk is losing the money you’ve invested with no chance of getting it back. Risk in our industry is often misidentified as the short-term ups and downs of the stock market, which investors can not only recover from over the long term but also use to their advantage to achieve even better investment performance.
Schizomedia – The extremely noisy system created when the constant flow of information and opinions from the financial press is combined with the chatter from a multitude of market participants, pundits, observers and analysts.
An overindulgence in this so-called news leads investors to make poor investment choices. Good investors don’t act on emotion and remain attentive to their end goals knowing that whatever happens in the short term is meaningless.
Success – Achieving investment results at or near the top of our peer group over 10 years, remaining an investment-led organization that has strong relationships with our investment partners and maintaining a company culture that inspires our employees to think and act like owners.
Success in our industry is often defined by how big a company can get, the wide range of its product lineup or the number of awards it has won, none of which serve the best interests of investors.
Volatility – Often presented as a problem that investors must address or at least try to minimize.
We view volatility as opportunity. It’s not risk in our books.