When building an investment company list, it’s critical to assess each firm thoroughly before deciding where to invest your capital. Some key factors to evaluate include investment philosophy and process, long-term performance across market cycles, risk management approach, fees and costs, customer service, and company culture. This article provides guidance on specific criteria to examine and questions to ask when researching investment companies to create your shortlist.
Look beyond recent returns to long-term performance
Many investors choose funds purely based on the highest recent returns. However, superior long-term performance matters far more. Analyze returns over full market cycles of at least 5-10 years. Examine both absolute returns and performance relative to appropriate benchmarks. Review performance during market declines as well as rallies to assess risk-adjusted returns.
Understand the investment philosophy and process
Learn how each firm develops their investment strategy and constructs portfolios. Do they take a passive indexing approach? Or is it an active strategy based on security selection? Make sure you align with the core philosophy. Also understand their research process and how they select securities.
Evaluate risk management strategies
Risk management is critical to long-term success in investing but is often overlooked by individual investors. Review how each company manages portfolio risk – their approaches to diversification, position sizing, stop losses etc. Making money is only half the battle – not losing it matters just as much.
Examine fees, costs and incentives
Fees and costs make a very significant difference to long-run investment returns. Scrutinize expense ratios, transaction costs, loads, 12b-1 fees etc for each fund and portfolio. Also review how fund managers are compensated. Are incentives aligned with investors’ interests?
Performing thorough due diligence across these factors when researching investment firms is essential to build a high-quality shortlist. This rigorous evaluation process helps identify those best positioned to meet your long-term investing goals.