Going above and beyond: stronger investment theory and practice

There are significant limits to mainstream investment theory and how it is used in practice. This paper presents a stronger investment model that acknowledges and begins to address the complexity innate to the investment industry. As a result, we argue that investment practice should adopt a few organising principles:

• Harness the power in values and beliefs processes to create the foundations to portfolios
• Adopt realism with respect to comparative advantage in in-house/out-house skill
• View risk in multiple ways particularly in mission impairment
• Recognise risk is both an across-portfolio and across-time challenge
• Recognise ‘mind-set’ as the biggest hindrance to, and opportunity for, long horizon investing
• Integrate ESG/extra-financial factors for sustainability and responsibility
• Enhance portfolio construction by reference to portfolio quality and risk management plan.