Mark’s research history
The history of Mark’s research extends back to junior high and high school. None of his family members had ever owned a stock but he had friends who’s did. He became fascinated with the fact that any investor could own a piece of these many companies. That fascination naturally led to a fascination with the prices of stocks going up and down and the reality that owning the right one as the right time could yield big profits. There’s where the decades of research began.
From the very beginning Mark began purchasing all kinds of books and magazines about investing. These books spanned a wide range of topics but focused primarily on the analysis of stocks, how the economy works, and stories of some of the most successful investors. This collection of books today numbers in the 100’s and have been among the biggest influences in Mark’s research and investment disciplines and strategies used today.
Mark attended Indiana University and pursued a major in finance. The study of finance included a couple of classes on investments but really was a relatively small contributor to Mark’s knowledge in this area. What was extremely valuable was the relationships Mark formed with a couple of his professors who would later validate his research and write a paper on the disciplines used in his investment strategy.
Mark worked for a large real estate company during part of his college years. While there he got a project to write a computer program to manage the firm’s property taxes in 41 states. Mark designed the program and engaged a high school buddy who was an expert computer programmer. To complete this project, Mark had to learn computer programming. Little did he know that would be a lifelong skill that would dramatically impact his research and business.
After college and a couple of years at a large bank where Mark continued to improve and use both his research and computer programming skills, Mark founded what is today Patton Fund Management, Inc. That was in 1992.
The first project Mark took on when starting his company was to build a comprehensive research system. For those who remember, in those days everything was in MS-DOS! Mark developed and wrote a program that integrated several of the most comprehensive stock research databases at the time. The system would then produce 30+ pages reports on nearly any stock at the push of a button. Mark sold these reports, as well as a monthly newsletter, to individual investors and regional brokerage firms.
In addition to selling research reports and a newsletter, Mark was doing extensive research on his own. With Warren Buffett being Mark’s biggest hero in the industry, his research focused on identifying stocks that fit some of the same value disciplines as Warren Buffett. Then in 1993 Mark sold several of his stock research reports and newsletter to an individual who would later become his first investment management client. That was the start of what the business is today.
For the first several years of managing money for clients, Mark’s research focused almost entirely on the selection of value stocks (disciplines of Warren Buffett) for his clients’ portfolios. As logically and fundamentally based as this strategy is, it became apparent after a few years that getting a meaningful edge with such a strategy was extremely difficult.
An area of study in the investment community called behavioral finance got started in a meaningful way in the 1960’s. This is the study of the effects of psychology on the investment decision making process. It was in the mid-‘90s that it started to get some real attention and traction. This captured Mark’s interest and he began digging deep into the research.
After a few years of studying the literature on behavioral finance, Mark decided to create an investment strategy incorporating many behavioral principles. These seemed perfectly suited to Mark. A behavioral based investment strategy is one that ideally is designed to take advantage of the poor behavior of other investors. It was Mark’s opinion that to successfully do this, his behavior must be removed from the process. This meant that the strategy would be a set of mathematical rules that would be used to implement the behavioral disciplines. This was perfectly suited for Mark…building a rules-based (computer program) investment strategy!
The development of Mark’s first behavioral based rules strategy took about 3 years of intense research. It was launched in April 2001 and was a traditional long-only strategy. Then following the bear market of 2000-2002, he returned to his research to create a short selling strategy to combine with the existing long strategy. This was completed and launched in mid-2003. This was Patton’s first stock hedging strategy which positioned the company to help investors in ways Mark did not even realize at the time!
Shortly after developing the long/short stock strategy, Mark engaged with a couple of institutional investors, both of whom had decades of experience and took great interest in his strategy. It was during his relationship with these investors that he learned the principles and math of diversification. Correlation is one of the key statistical tools used when building a diversified portfolio and Mark’s long/short strategy was a super fit.
This new understanding about diversified portfolios and the value his long/short strategy provides in a portfolio led Mark to another research project. The search was now on for investors who have utilized these diversification portfolio principles, how they have done it, and what have been the results. This was a lengthy research project that ultimately made it apparent that few investors are reaping the benefits of real diversification. The few that could be identified were university endowments with Yale and Harvard being the pioneers using these disciplines for decades with great success.
Mark studied these university endowments focusing mostly on the Yale Endowment due to its long-term implementation of the diversification principles, its great performance records, and its Chief Investment Officer having written books about their strategy. Taking all that was learned from his relationship with the two institutional investors and study of the university endowments, Mark created his Super-Diversification investment strategy. Super-Diversification incorporates all that was learned into a strategy that can be used by individual investors so that they can be positioned to reap the long-term benefits available.
frequently asked questions
We must first understand what is an index. An index is something that measures the value and performance of a particular type of investment. For example, the Dow Jones Industrial Index is an index of 30 stocks that tends to be used to measure the performance of the U.S. stocks market (in particular large U.S. stocks).
There are hundreds of indexes to measure the performance of nearly any type of investment. Some of the more popular indexes are the following:
- S&P 500 (U.S. large stocks)
- Russell 2000 (U.S. small stocks)
- MSCI EAFE (International developed country stocks)
- Barclays Aggregate Bond Index (U.S. bond market)
Again, there are hundreds of indexes for all types of investments. These indexes are only mathematical calculations and not actual money. For example, the S&P 500 is an index of 500 U.S. stocks. The price of each of the 500 stocks is used to calculate the value and performance of the index.
An index FUND is simply a fund that is designed to replicate a given index with real money. For example, an S&P 500 index fund typically owns all 500 stocks in the S&P 500 index. Therefore, its performance is going to be virtually identical to the performance of the mathematically calculated S&P 500 index. These funds are considered to be passively managed meaning that they simply are designed to replicate the index and there is no manage actively trying to buy and sell securities.
Today there are 100’s of index funds…funds that are designed to replicate the performance of nearly every type of investment.
Not all indexes funds are created equally. As one example, there are many S&P 500 index funds and some will have very low fees and some will not.
An Exchange Traded Fund, or ETF, is a fund similar to a mutual fund. The primary difference is that an ETF is traded on an exchange like a stock while a mutual fund is only bought and sold at the close of trading once a day.
The majority of ETFs are also index funds (addressed in a separate FAQ). The advantage of ETFs over mutual funds is that ETFs are sometimes a little less expensive than a like-typed mutual fund and ETFs sometimes offer access to more types of investments.
There are generally two types of funds, passively managed (index funds) and actively managed. A passively managed index fund (addressed in a separate FAQ), such as an S&P 500 index fund, simply owns all 500 stocks in the S&P 500 and intends to replicate the performance of the S&P 500 index. An actively managed fund is own where there is a manager or team of managers whose job it is to try to buy and sell the right securities and the right time in an effort to perform better than an index.
The fact is that actively managed funds on average underperform like-type index funds. Higher costs, both higher expense ratios and other additional costs associated with operating the fund, are generally to blame for this poorer performance.
A custodian is the entity that holds your money or investments (your account). Brokerage firms and banks are typically the custodian of investors’ accounts. The custodian is responsible for the safekeeping and reporting on your account.
One way to dramatically reduce the risk of fraud is to separate the role of custodian and manager. This provides investors with a good checks and balances and makes it nearly impossible for a manager to fraudulently take your money.
Determining your risk tolerance is one of the very most important things you can do. Your risk tolerances is simply determining how much risk you are willing to take with your investments. Most often risk tolerance is determined by completing a questionnaire. These questionnaires are often very good tools.
Risk tolerance is both a combination of financial risk and emotional or psychological risk. Many investors can financial afford higher risk but emotionally they cannot handle the ups and downs that come with that higher risk.
Once an investor knows his risk tolerance, a portfolio then needs to be designed that is expected to deliver the desired level of risk.
An independent investment advisor, often a Registered Investment Advisor (RIA), is one who does not work for a brokerage firm. Independent advisors tend to be less motivated to sell products and instead focus on giving the best advice to their clients.