An Elegant Solution
I love a good analogy. My experience trading options and training others how to manage the risk associated with an options portfolio has taught me that effective analogies can open the door to deeper understanding. New situations often remind me of an experience from which I can draw context. Going through the exercise of identifying the similarities and differences can help reveal a solution to a new problem that resembles one we’ve already seen. A good analogy helps describe the unfamiliar in terms that are familiar and relevant.
Recently, I came across an article in Herman Miller’s WHY emagazine that described the firm’s philosophy. It struck me as an eloquent and creative version of what we’re trying to do at Luminist Capital. Initially it may seem unlikely a furniture design philosophy could or even should be applicable to the investment management space, but humor me for a bit. Architect George Nelson, who served as Herman Miller’s director of design for nearly 3 decades, wrote in the company’s 1948 catalog introduction something that transcends industries. It boils down to this:
· What you make is important
· Design is integral to business
· Products must be honest
· There is a market for good design
This philosophy has arguably helped the company endure a radically evolving business furniture market and a variety of economic environments while earning numerous awards for how it conducts business. I thought it would be an interesting exercise if we fleshed out these principles from Luminist Capital’s perspective.
“…anchoring a design portfolio in an ethos as opposed to aesthetics, you not only insulate yourself from the capriciousness of market trends, but also from the threat of obsolescence. If you start with a problem and create an elegant solution to that problem, there is a strong chance your design will endure.”
What We Make is Important
We know our clients put a great deal of trust in us to manage their investments. The funds placed with us could be the beginning of what one day will fund a retirement, a major purchase or a significant life event. They may represent a culmination of years of hard work and disciplined saving. They could be the legacy intended for future generations, a responsibility that spans time both past and future. The portfolios we design, manage and administer are bigger than us. What we make is important because people’s lives are impacted by the results of our work. It’s a responsibility we take seriously.
Design is Integral to Business
Nelson wrote “Herman Miller, like all other companies, is governed by the rules of the American economy, but I have yet to see quality of construction or finish skimped to meet a popular price bracket, or for any other reason.”
Our approach to portfolio design started with studying the problems facing investors. We looked at the common approaches for addressing the problems and came up with solutions that do not always resemble those delivered by others in the industry. The solutions we offer are not constrained by convention or intended to be popular. Our portfolio design is our best attempt at delivering solutions to problems that plague investors. We offer what we think is right, not what we think will sell. In this regard we identify more with the “craftsman than the industrialist.”
Products Must be Honest
Honesty can be solution in itself. In the investing world hidden conflicts of interest, undisclosed costs and a lack of transparency erode both trust and performance alike. As a registered investment advisor, we are held to a fiduciary standard the wirehouses are not. Our fees are fully disclosed. We don’t get paid commissions. Transaction costs are itemized. Our portfolios contain products that are highly liquid and priced continuously throughout the trading day. Our clients are invested in products that best represent their risk appetite, not what pays the advisor the best kickback. We aren’t constrained by a limited list of products or influenced to recommend something because of a preferred payout. Honesty and transparency are essential elements to our portfolio design.
There is a Market for Good Design
We don’t use options to be different, we use them because they’re the best material for the product. The Eames chair would never exist if it were built exclusively from wood. Its blend of materials and the techniques required to create the unique profile are integral to what makes it an Eames chair. Our Alternative Yield and Risk-Wrap portfolios would not exist if we were constrained to only stocks and ETFs. The techniques we employ to manage risk and express our investment philosophy require the use of options in addition to stocks and ETFs. Some investors may not be comfortable with options, that’s ok. Not everyone wants an Eames chair in the family room. We know there’s a market for risk managed portfolios. Our idea of good design for risk managed portfolios involves options.
The Eames chair is an elegant expression of Nelson’s goal to create “a permanent collection designed to meet fully the requirements for modern living.”
Our option overlay portfolios are an attempt at an elegant solution, designed to meet fully the requirements for modern investing.
Find out more about our view on portfolio design by emailing email@example.com