Investment Philosophy

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Selective pursuit of outperformance

Markets are incredible mechanisms for growing and protecting wealth. We respect that by encouraging participation through time in the market and not timing the market. Markets work well, most of the time. But we have been around long enough to see how markets get it wrong, sometimes. We believe that these errors can be identified and taken advantage of, and this informs how we invest.

The three most common gaffes the market makes, where we believe we are well-suited to identify and capitalize upon, are related to (1) the regular mispricing of individual securities, (2) the persistent folly in certain classes of stocks (industry wonks refer to these as “risk premia,” with the most common being size, value, and profitability), and (3) broad mispricing driven by market dislocations and behavioral aspects (like fear, greed, and FOMO).

To capitalize on the regular mispricing of individual securities we offer clients an actively managed equity strategy, run by chief investment officer Bryan Hinmon. Using decades of experience, a mix of qualitative and quantitative analysis, and rigorous fundamental research, our Hoot 30 equity strategy provides a focused portfolio of uniquely attractive, high-conviction individual stock selections that help form the core of an equity allocation. You can learn more about the Hoot 30 here.

To capitalize on the persistent mispricing of classes of securities, we can and do tilt portfolio exposures in favor of any characteristics that have proven to be robust and sensible sources of excess long term expected returns.

Finally, market dislocations can provide meaningful return and diversification opportunities. It is difficult to predict when and where these opportunities will arise, but it is folly to believe that they won’t. The most common ways we can capitalize are to alter the investment mix between active and passive investments, add targeted satellite holdings, and change our risk posture.

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A unique Core-Satellite approach

In our view, the basic Core-Satellite approach is suboptimal. This approach most often creates a Core of passively managed index exposures and tacks on a smattering of actively managed Satellite bets to try and add return or manage risk. We reject to the notion that only index solutions can form the foundational Core of a portfolio, dislike the short-term “bet” orientation of most Satellite positions, and think that the planet and orbiting moon imagery results in a disjointed portfolio construction.

We think we can do better. We believe our Hoot Wealth Core-Satellite framework helps reinforce our investment philosophy. It embraces the idea of focused outperformance across the entire portfolio, provides maximum flexibility in blending active, passive, idiosyncratic and systematic investing approaches, allows for thoughtful adjustments around a stable foundation, and encourages an integrated portfolio.

You can learn more about our unique Core-Satellite approach here.

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Thesis-driven asset allocation and security selection

Risk is a tough subject, but the simple truth is that investing involves taking risk. Investors shouldn’t expect to earn returns for not taking risk. Importantly, investors shouldn’t expect to earn returns just for taking risk, either, because in life we only experience a single outcome in each situation, even though there are many possible outcomes that could have been (you may have just gotten lucky). This is why we are dedicated to the idea of risk consciousness.

We believe the prudent way to handle uncertainty is to try to accept risks we are aware of, can analyze, can diversify, and feel that we are well-compensated for taking. We take great effort in crafting asset allocations and selecting securities for investment.