Quality-value investors are hopeful in the face of adversity and cautious in times of prosperity. We look to buy high-quality securities that have been unjustly beaten down by the market due to some short-term affliction, with conviction that the value of the underlying companies will be recognized in the market once a recovery takes place.

Our investment philosophy often runs contrary to market trends and keeps us level-headed through the various stages of the market cycle. In the recent prolonged bull market with valuations soaring high, we have been more cautious concerning our decisions to buy new companies or add to existing holdings. Over the past few months, this bull market has given way to some downside volatility, and while this can be cause for emotional stress, we are hopeful in the face of adversity because experience has taught us that patience and discipline pay off over the long term.

As an investor, it is critical for you to remain level-headed amidst volatility and uncertainty, stay focused on your long-term objectives, and maintain realistic expectations through the market’s ebbs and flows. Going forward, we feel it is realistic to expect returns close to the long-term average over the long term; immediate and medium-term returns may fall short of the long-term average. We believe equities remain the best option for your long-term investible assets and, as you know, in order to generate long-term returns you must be invested in the market and able to weather the short- to medium-term volatility. So, depending on your personal circumstance and willingness (or, more accurately, unwillingness) to tolerate volatility, we might suggest dollar cost averaging, or “tranching,” for large amounts of new investment capital. Not to be confused with market timing, tranching involves investing incremental amounts over a period of time rather than as one lump sum. This approach should help to reduce the volatility of your portfolio and the resulting emotional stress, while keeping your eyes fixed firmly on the horizon.

A large investment of new capital in the context of your investment portfolio is relative, not absolute; a $500,000 addition to a portfolio of $50,000,000 may not warrant dollar cost averaging because it only represents a 1% increase to the total value of the portfolio. On the other hand, a $500,000 addition to a $1,000,000 portfolio could benefit greatly from this strategy since it represents an increase of 50%.

Further, new capital refers to money that was not previously invested in the market. If you are increasing the value of your portfolio by 50% because you are transferring your equity portfolio from one institution to another, we would likely recommend you invest all or a majority of the funds right away. Conversely, if you recently inherited a large lump sum not previously exposed to the capital markets, it may be prudent to invest in tranches over a period of time. The frequency and duration of the tranche are customizable depending on your personal situation, but we generally recommend tranching monthly over a period of at least three to six months.

As John Maynard Keynes once said, “It is better to be roughly right than precisely wrong.” While dollar cost averaging mitigates the possibility of being precisely wrong, it implies that you will not be exactly right, either. By employing this strategy, you are giving up some upside potential in a rising market to mitigate downside risk in the event of a market downturn. After all, capital must first be preserved before it can grow.

If you would like to discuss this or other topics pertaining to your investment portfolio, please contact your Investment Counsellor.


This post is presented for illustrative and discussion purposes only. It is not intended to provide investment advice and does not consider unique objectives, constraints or financial needs. Under no circumstances does this post suggest that you should time the market in any way or make investment decisions based on the content. Select securities may be used as examples to illustrate Burgundy’s investment philosophy. Burgundy funds or portfolios may or may not hold such securities for the whole demonstrated period. Investors are advised that their investments are not guaranteed, their values change frequently and past performance may not be repeated. This post is not intended as an offer to invest in any investment strategy presented by Burgundy. The information contained in this post is the opinion of Burgundy Asset Management and/or its employees as of the date of the post and is subject to change without notice. Please refer to the Legal section of this website for additional information.