Peabody River Asset Management, LLC

  • Private Wealth Management
  • Endowment Management
  • Investment Consulting

Our Investment Process

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ur expertise lies in the structuring of portfolios of financial assets to address the objectives, constraints, and risk tolerance of each client. We bring many years of professional experience in portfolio construction and risk analysis to bear on our decisions.

We begin by working with you to develop your personal balance sheet and to learn about your likely future cash flows and financial objectives. We also work with you to develop a common understanding of how investment risk may affect you and to determine your ability to bear investment risk. We document our conclusions and our strategy in an Investment Policy Statement, which remains a point of reference for you and for us.

With this knowledge and with our understanding of the capital markets, we proceed to put together your investment portfolio. There are four conceptual stages in creating an investment portfolio. Listed in order of decreasing importance for the portfolio's financial results, these are:

  1. Asset Class AllocationThis is the decision of how much of the portfolio should be in each asset class, like stocks and bonds, and sub-class, like U.S. stocks, international stocks, corporate bonds, and government bonds. There are many more such classes of investments.
  2. Asset LocationThis is the decision of where an asset should be held: in a taxable account or a tax-advantaged account, or, if the client is really a family of clients, which individuals in the family should hold which assets, after taking into account the entire family portfolio. For example, a trust that holds assets for a beneficiary and a different remainderman has to be structured in a way that takes into account their differing needs and other financial assets.
  3. Security SelectionThis is the choice of which particular securities to buy and which to sell. For example, should the portfolio contain, say, General Electric common stock? Or the 8.75% U.S. Treasury bond maturing 15 August 2020 and currently yielding 4.8%? Many non-professional investors, and even a few professionals, consider this to be the heart of the investment process. It can unquestionably be challenging. But credible research has repeatedly shown that, unless the investor makes the risky decision to hold no more than a handful of securities, Security Selection almost always matters far less than Asset Class Allocation and Asset Location in determining long-term results.
  4. Asset AllocationThis is the decision of how much weight to place on each security, once the securities are selected. Should all the stocks be held in the same proportion? Or should they be weighted by the size of the company? Or by their likelihood of outperforming the S&P 500?

The actual investment process is more complex than this, because the four stages interact with each other.