Before you have a race you need to establish the ground rules.
Who is the competition? What length is the race?
Our overall competition is the entire U.S. domestic equity market. We
compete with the market as a whole and within two sub-divisions. One
sub-division is comprised of large-cap stocks. The other sub-division is
comprised primarily of small-cap and mid-cap stocks.
Our competitor in the large-cap sub-division is the S&P 500 Large-Cap
Index. Our competitor in the small-cap/mid-cap sub-division is the S&P
1000 Small-Cap/Mid-Cap Index. Our competitor for the entire U.S. Equity
market is the Dow Jones Wilshire 5000 Total Market Index.
In all portfolios we seek to attain long-term returns that are higher
than the comparable indexes, with less volatility along the way.
The length of the race is 10 years or more. Plenty can happen in ten
years, as we have certainly witnessed first-hand since the creation of
our process in 1999. Our portfolios have shown themselves to be
competitive over nearly a decade of turbulent conditions. Sometimes they
fall behind their more hare-like market competition. Their relative
steadiness, however, has endured.
Gross return numbers donít tell the whole story, however. There are
other benefits to our approach that help our clients keep more of what
we earn for them. First, our approach does not involve a great deal of
active trading, which lowers trading costs. Second, our approach is
extremely tax-efficient and taxes are a major issue for the high net
worth clients we serve. Finally, the lower volatility we achieve with
steady growth stocks makes it easier for our clients to stay the course
when emotion is tempting them to bail out at just the wrong time.
All-in-all, it is our belief that Thomas Smith and Associates will
grow the wealth of our clients more effectively than any other equity
management firm over any given 10-year period.