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.