AS AN INVESTMENT ADVISOR with more than twenty-five years of value investing experience, I have always had a passion for investing and have been lucky enough to spend nearly 25 years managing investment portfolios for pension funds, endowments and high-net-worth families. My institutional experience and knowledge have led to the steadfast belief that: 

  • A detailed Investment Policy Statement and an appropriate benchmark are essential to guide investors on their desired financial path

  • Capital preservation and the power of compounding are critical to investment success

  • Fundamentals (growth and profitability) regress to the mean and markets are cyclical

  • Human nature is pro-cyclical -- fear and greed lead to selling low and buying high

  • Wall Street does not always put their clients first and they charge too much for poor performance

IN MY EXPERIENCE: there are two major obstacles preventing individuals from reaching their investment goals: Wall Street and Human Nature. Individually, each obstacle is formidable but when these two forces are combined, it nearly impossible for many to reach their investment goals of: a comfortable retirement, improved living standard or providing a family and/or charitable legacy.


In my view "the street" continues to:

  • Employ many questionable practices, fraught with conflicts of interest 

  • Rely on antiquated investment theories (Efficient Markets, Modern Portfolio Theory, Buy & Hold)

  • Charge too much for poor performance and/or advice 

Additionally, while most investors are aware that human nature and emotions (fear and greed, and fight or flight) impact their investment decisions, in the past ten to twenty years, research in behavioral finance has led to a better understanding of how investors make decisions.

 

This research has revealed that humans have many cognitive biases (mental shortcuts) that were hard wired into our DNA 10,000 years ago. While these biases helped our ancestors survive, evolve and prosper, today, they negatively impact our decision making process, especially regarding financial decisions. While most economists and academics believe individuals and markets are always rational and efficient, we are confident that human nature negatively impacts our financial decisions and investors need a strategy to overcome:

  • Fear and Greed, and Fight or Flight

  • Herd Mentality, Gamblers Fallacy and Linear Thinking

  • Loss Aversion (not risk averse), Sunk Cost Effect and Endowment Effect

  • Attribution Bias, Confirmation Bias, Outcome Bias and Recency Bias

 

​I FOUNDED MANLEY CAPITAL MANAGEMENT, LLC to employ a disciplined, institutional investment process to overcome these investment obstacles and partner with clients to grow their savings in a responsible manner that is simple yet sophisticated.

 

J. Lawrence Manley, Jr., CFA, CIPM