25 Years...and counting!

July 27, 2023

In March of 1998, I founded ASI Wealth Management. At the time, I had no idea where this would lead, I only knew I wanted to be able to do what I believed was the right thing for my clients. After years of working in the brokerage industry and for a few regional money managers and trust companies (Crabbe Huson, Pacific Northwest Trust Company and Copper Mountain Financial Group), I wanted to put clients first, go the extra mile, form lasting relationships and assist clients in achieving all that is important to them and their loved ones. So off we went!

I love the memories of setting up shop in my home office with a folding table and chair. My overhead was low, which was good, as I only had one client. Slowly and steadily, we grew; one relationship at a time. We spent the time getting to know the clients and put together a team of experts, both internally and externally, to assist them with all their financial needs.

25 years later, I feel lucky to have such incredible clients and strong relationships with my team. It brings a smile to my face whenever I think about the impact we have made on the lives of our clients and their loved ones. We will continue to work diligently to try to make an even bigger impact on our clients’ lives over the next 25 years.

Over the course of ASI’s history, I have always found it rewarding when the mainstream media and/or so-called industry experts shine the light on strategies we have been utilizing at ASI for decades. Sometimes I think they may never figure out how to serve their clients better, but occasionally we get a glimmer of hope that our industry will look at the facts in front of them and say, “Oh, that makes sense!” I recently had one of these moments when I read an article published on Market Sentiment’s website titled, “Factor Investing, What Drives Asset Returns.” The article touches on Warren Buffett’s approach to investing and how he and several of his value investing peers have outperformed the stock market by utilizing a Value approach to investing. The article then elaborates there are other factors that have been identified and have historically delivered superior investment results to investors. It mentions the Fama-French Five Factor Model. It discusses how portfolios can be structured to capture these dimensions, or factors, to enhance investors’ results over time. The article outlines what we learned at ASI over two decades ago and illustrates how we have structured portfolios to capture these higher-than-expected returns for our clients. So, what are these factors and how do we capture them? The factors we have focused on capturing are as follows: 

Stock Market Risk: We know, historically, stocks have outperformed bonds and Treasury Bills. The concept is straight forward. You take more risk in stocks, and you get a higher rate of return. Not every year, but over time you are rewarded for taking more risk.

Size Premium: Many of our clients have heard us talk over the years about the fact that small stocks historically have performed better than large stocks. This premium is again due to risk. Small stocks are riskier to own, so as investors we require a higher rate of return to invest in them, otherwise why would we take the risk? Over the past 90 years, small stocks have outperformed their large stock counterparts by 1.88% annually.

Value vs. Growth: Again, we have discussed this factor with many of our clients over the years. Value stocks have historically outperformed growth stocks, and again this has to do with risk. Value stocks tend to have weaker balance sheets and their cost of capital is higher, so as investors we require a higher expected rate of return to invest in value stocks. In a recent study, looking at 10-year rolling time periods from 1926 to 2018 value stocks have beaten growth stocks 84% of the time.

Profitability:  One of the more recent additions to Fama and French’s research is, unsurprisingly, profitable companies have generated significantly higher returns as compared to less profitable firms over time. 

There are other factors which affect returns over time, as well, but the above are the primary drivers. Since our inception, we have used Dimensional Fund Advisors (“DFA” or “Dimensional”) to help us capture these “premiums” as Dimensional likes to call them. DFA was founded by David Booth who was a graduate student of Gene Fama’s at the University of Chicago. I have spent quite a bit of time with David Booth, Gene Fama and Ken French over the years at the Dimensional Advanced Conference. Fama and French are both on advisory boards for Dimensional and have assisted them in perfecting their approach to capturing these factors and delivering higher returns for clients. It is always nice to have confirmation that what you have implemented for your clients makes sense and has worked.