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Structured, Diversified, Rebalanced

2019 is coming to an end and we have seen good returns in the market. Most indexes (domestic and global) are up year to date.

Our investment philosophy, which is based on observed evidence and extensive research from Nobel prize winning academics, is that no one can predict what will happen in the future and only unknowable and random events move market prices going forward.This is more commonly known as the Efficient Market Hypothesis.

Since no one knows where the markets are going to end up tomorrow, next week, next year, or even over the next 5 years there really is just one way to move forward and that isto have an investment portfolio that is fully diversified globally.

As one of our clients with a Matson Money portfolio your investments are stretched all over the financial markets and the globe. Your investment portfolio is invested in 45 different countries with exposure to over 17,000 unique security holdings and this is the case no matter the size of your personal portfolio.

45 countries where portfolio is invested

Australia  Austria Belgium Bermuda Canada Denmark Finland France Germany Greece Hong  Kong Ireland Brazil Chile China Colombia Czech Republic Egypt Hungary India  Indonesia Israel Malaysia Italy Japan Netherlands New Zealand Norway Portugal  Singapore Spain Sweden Switzerland United Kingdom United States Mexico Peru  Philippines Poland Russia South Africa South Korea Taiwan Thailand Turkey


This incomparable level of diversification allows the portfolio to be structured so that it can benefit from market opportunities all over the world. Choosing a diversified and structured strategy and staying with its long term can have great impact on the long-term financial health of an investor’s portfolio. Chasing performance through buying and selling is a chancy game and historically speaking, it may reduce an investor’s real return over time.

Understanding your portfolio is important and understanding the risk associated with your portfolio is necessary. Your time horizon, goal of the invested money and your unique risk tolerance plays a role in deciding the specific mix of equities vs bonds. If you need to review where you have your mix, please schedule meeting with us.

As an example,the aggressive portfolio has been designed for long term growth: “The Aggressive Growth portfolio offers the greatest growth potential and exposes the investor to the greatest degree of volatility. The investor must accept the high degree of risk inherent in the stock market. Annual withdrawals are discouraged due to expected volatility in the short term.” (Matson Portfolio)


Your investments get rebalanced on a quarterly basis to make certain that the allocations stay in line with the portfolio objective. Asset classes that have been surging will be rebalanced down and asset classes or countries that have not performed well will be bought. This assures to a degree that your portfolio buys low and sells high and makes sure that the integrity of the portfolio is always maintained.

Studies show that more than 90% of a portfolio return comes from asset allocation and only about 4% comes from stock selection(the rest is from other factors and timing)*

Asset allocation based on diversification, rather than market predictions, is a much healthier way to pursue opportunity for successful long-term investing. In simple terms: What mix of asset classes is inside of your portfolio? 

The importance of asset allocation validates that market timing and stock selection do not add any real significant value to and investment portfolios returns. So, with that knowledge you do not need to worry about the individual stocks you have inside your portfolio.  Instead, you should understand how each type of equity is represented in your portfolio and how your investments work together.


Summary of Academic Principles  on which the portfolios are built and maintained.


Free Markets Work

Modern Portfolio Theory

The Three-Factor Model



The first principle is that Free Markets Work. This was really first put into context by Eugen Fame in 1965. In his Ph.D. dissertation Eugene Fama wrote “In an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value.”


The 2nd principle is “Modern Portfolio Theory”  

This is developed based on the concepts of Markowitz, Sharpe and Miller. Modern Portfolio Theory analyzes portfolio performance based on risk and return. The theory of risk and return won them the Nobel Prize. Based on their research and evidence correlation is the foundation of diversification and can help you achieve higher returns with less volatility.

Correlation is really the relationship between two investments and Dr. Markowitz measured the probability of asset categories moving dissimilarly and found that It is possible to have two assets that appear fairly volatile individually but when they are combined in a portfolio actually can reduce volatility and increase the potential rate of return.



The 3rd academic principle on which Matson’s Free Market Portfolio Theory is based is theThree-Factor Model.

This model was developed in 1990 by Kenneth R. French of Yale University and Eugene Fama.  They found out through their academic research which sources of risk the market systematically rewards with higher returns.  The factors that they found are: 

The Market Factor

The Size Factor

The “Value”Factor


The Market factor risk premium premium is the difference between the expected return of the market vs the risk-free rate. It delivers an investor with an expected higher return as compensation for the additional volatility that the market has.


The size factor premium is in simple terms the return that smaller companies produce compared to larger companies.

It measures the historic additional return that small cap companies create over over  large cap companies.

The basis behind this factor is that over longer term smaller companies tend to have higher returns than larger cap companies.


The value factor premium is represented through the spread in returns between companies with high book to market value vs companies that have low book to market ratio. This value factor historically shows that over longer period of time value companies( high book to value ratio) tend to produce higher returns vs growth companies (low book to value ratio)


Brinson, GaryP., L. Randolf Hood, and Gilbert L. Beebower. ‘Determinants of Portfolio Performance.’ Financial AnalystsJournal.  January-February 1995.  

* https://blogs.cfainstitute.org/investor/2012/02/16/setting-the-record-straight-on-asset-allocation/


Fama, Eugene F. and Kenneth R. French. “A Five-Factor Asset Pricing Model”.  Booth School ofBusiness, University of Chicago (Fama) and Amos Tuck School of BusinessDartmouth College (French).  March 2014.  Print.  [Expansion ofthe 3 factor model]

"Diversificationand asset allocation strategies do not assure profit or protect against loss.Past performance is no guarantee of future results. Investing involves risk.Depending on the types of investments, there may be varying degrees of risk. Investorsshould be prepared to bear loss, including total loss of principal

Jan Axel Tribler
December 11, 2019
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