Founder and Executive Chairman of Dimensional Fund Advisors David Booth reflects on the importance of having an investment philosophy you can stick with over the long-term.

“After more than 35 years in the financial services industry, I have found that having an investment philosophy-one that is robust and that you can stick with-cannot be overstated.”

Just like a personal philosophy can act as a moral compass, an investment philosophy can guide your decisions on how to invest. While this may sound simple, the implications can be significant. People who put their savings to work in capital markets do so with the expectation of earning a return on their investment, and there is ample evidence to support that long-term investors have been rewarded with such returns. But we also know that investors will encounter times when the results are disappointing. It is in these times that your philosophy will be tested, and being able to stay the course requires trust. The alternative approach likely consists of moving between different strategies based on past results, which is unlikely to lead to a good outcome.

At Dimensional, our investment philosophy is based on the power of market prices and guided by theoretical and empirical research. What does that mean? Markets do an incredible job of incorporating information and aggregate expectations into security prices, so it does not make sense to form an investment strategy that attempts to outguess the market. Our approach focuses on using information contained in prices to identify differences in expected returns. We conduct research to help us organize our thinking, improve our understanding of what drives returns, and gain insights on how to build sensible portfolios. One such insight is looking beyond average returns. By considering the entire distribution of outcomes, we can better understand what investors should be aware of to help them stay invested when results aren’t what they expect.

To read the entire Letter click here: Letter from the Chairman 2017