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Philosophy: FAQ


Investors are becoming increasingly dissatisfied with a one-size-fits-all approach to investing. As the financial circumstances and risk tolerances of investors differ, so too must their portfolios. Utilizing separate accounts, DCM offers customized portfolio management to meet a wide range of client needs. DCM develops portfolios that reflect each client’s unique financial situation and investor profile, as well as client-dictated restrictions.

One of the foundations of DCM is that portfolio management and financial planning must be integrated in the investment process. Only then will an investment policy truly reflect a client’s unique financial situation and investor profile. Too often the focus of the investment process is on portfolio management; however, the most important steps of the investment process occur before a portfolio is constructed. A client’s profile as an investor must first be examined to develop an investment policy that addresses a client’s specific objectives and constraints.


DCM has experience and training in both portfolio management and financial planning. DCM does not provide full-service financial planning; however, DCM is knowledgeable about the financial planning process and its impact on the investment process. DCM focuses on investment planning, which examines a client’s financial situation, objectives, and constraints in developing a specific investment policy for each client. If dictated by the specific circumstances, DCM will refer clients to specialists who concentrate in other areas of financial planning.


Prior to selecting a portfolio, clients of DCM are asked to fill out a Client Profile/Suitability Questionnaire. The purpose of this questionnaire is to uncover a client’s financial goals, risk tolerance, constraints, and investment experience. DCM reviews the completed questionnaire and provides feedback to clients. DCM aims to educate clients about relevant issues discovered in the questionnaire and to eliminate inconsistencies between client goals and risk tolerance. DCM views this feedback and education process as essential in matching a client to an appropriate portfolio. Following this, an Investment Policy Statement is created and an appropriate portfolio is selected.

DCM understands the importance that financial market expectations play in creating an investment policy for a client. DCM believes, however, that financial market expectations must focus only on long-term risk and return characteristics of asset classes. In the short-term, the direction of the financial markets is difficult to predict. As such, DCM’s short-term market outlook is never a factor in advising a client throughout the investment process. In assisting with portfolio selection and asset allocation, DCM focuses on a client’s financial circumstances, investor profile, and on long-term, historical relationships between risk and return.


Implicit in portfolio selection is an asset allocation decision. A client, in selecting a portfolio, determines the amount of money to allocate to one or more asset classes. This investment may represent all or just a portion of a client’s investable assets. Regardless, clients must be aware of their portfolio selection and associated asset allocation decision. History suggests that the asset allocation decision plays a major role in determining the risk and return level a client’s portfolio will experience. Investors who have not explicitly made an asset allocation decision are more likely to abandon their investment strategy when it is most detrimental -- during a market decline.

DCM does not attempt to time the financial markets by actively shifting money between asset classes. Many investors can correctly guess the direction of the stock market once or twice, but few if any succeed over the long term. The stock market reacts to unanticipated information, which by definition is unpredictable.

DCM believes that one of the keys to generating acceptable, long-term investment results is remaining invested in the stock market, not by market timing. As such, investors must be willing to tolerate the down periods in the market -- they are guaranteed to happen. This again highlights the importance of portfolio selection and asset allocation. If clients are uncomfortable with the volatility of their selected portfolio, they will have difficulty staying the course during turbulent times in the financial markets.


DCM’s investment strategies are focused on domestic stocks, but domestic bonds and international stocks can be used to complement client portfolios. Historically, domestic stocks have produced annual returns of approximately 10%, with significant fluctuations from year to year. Domestic stocks have historically outperformed domestic bonds and more conservative instruments like money market securities, albeit with more risk. While DCM cannot predict the future, DCM believes that stocks offer the best investment vehicle for clients with a long-term time horizon.


DCM offers its clients an investment strategy that explicitly manages their costs of investing and also addresses their tax status. The costs of investing, including taxes, are critical considerations for investors in selecting an appropriate investment manager and portfolio. Investor costs include but are not limited to management fees, custodial fees, commissions and other non-commission related trading costs. For taxable investors, interpreting the tax code, filing tax returns, and paying taxes add additional time and cost to the investment process. If these many costs are not identified and controlled, an investor’s returns will suffer.

DCM believes that its management fees are very competitive for the services it offers. Additionally, DCM has established relationships with trading firms and custodians that provide excellent service at a reasonable cost. DCM employs low-turnover investment strategies to minimize trading costs and taxable transactions. In addition to explicitly controlling costs, DCM believes that an investment manager has the duty to plainly disclose all potential costs of its investment strategy.


For taxable investors, taxes can represent the single largest investment cost. Yet too often investors and investment managers focus on pre-tax figures in evaluating the returns of a potential investment. For example, many mutual funds post acceptable pre-tax return figures, but those returns are much less attractive net of taxes. DCM’s use of separate accounts and its low-turnover investment strategies help minimize tax consequences to its clients.

DCM understands the obstacles most investors and their accountants face around tax time. To help mitigate these difficulties, DCM offers clear, concise tax reporting in addition to its tax-friendly investment strategies. DCM tax reporting assists clients in accurately reflecting the tax implications of their investment portfolios. DCM provides information on dividends, income, and cost basis for each security held in a client’s portfolio.


DCM is confident that the relationships it has built with its primary custodian and brokers will offer its clients proficient trade execution at a low cost. DCM has deliberately established separate custodial and brokerage affiliations. As such, DCM is not committed to trade with a single entity and is able to evaluate several brokers and market makers in obtaining execution. To trade efficiently and reduce costs, DCM will aggregate client orders when appropriate.

To further manage client costs, DCM avoids the use of “soft dollars” in trading. Soft dollars refers to an arrangement in which an investment manager pays its research costs through commissions generated by trading client accounts. DCM believes that through such an arrangement a client may at times be overpaying for trade execution. While the practice of soft dollars is both common and legal, DCM believes that the investment manager, not the client, is responsible for paying the costs necessary to support its investment strategy. Therefore, DCM pays its research costs directly and separately negotiates the lowest commission rate possible consistent with its mandate to obtain best trade execution.

Custodians serve many important tasks in the investment process. Their most important function is providing for the safekeeping of client assets. Custodians also play a major role with investment managers and their clients in trading and reporting. DCM has selected UMB Bank as its primary custodian. UMB Bank is a quality organization with a team dedicated to servicing the needs of investment managers like DCM. DCM believes that UMB Bank provides an unmatched service to investment managers and their clients at a very competitive cost.


DCM does not subscribe to the theory that the behavior of stock prices follows a random walk. Rather, DCM believes that select investment strategies can outperform the market, as measured by index funds, over a long-term time horizon. The historical track record of active managers versus index funds, however, suggests that this is a difficult task.

One of the keys to long-term success in the stock market is adhering to a disciplined investment approach. DCM employs quantitative techniques to implement disciplined, value-based investment strategies. These quantitative techniques provide a non-emotional tool in evaluating stocks and building portfolios.

DCM implements a majority of client investment strategies through the direct purchase of domestic stocks. DCM’s stock selection strategy emphasizes the tenets of value investing. Valuation, earnings growth, price momentum, expected return, and market capitalization are analyzed for each potential investment.


To reduce company-specific risk, DCM client portfolios will own approximately 30 domestic stocks. Although many investors hold hundreds of stocks indirectly through mutual funds, adequate diversification can be obtained with far fewer holdings. The additional diversification benefits of owning more than 30 stocks are marginal. DCM also diversifies client accounts by investing in several different industries and by investing in companies with various market capitalizations. Through diversification, the volatility of the entire portfolio is reduced.


By investing directly in individual stocks, DCM controls client portfolio turnover and its associated costs. Mutual funds are widely used as investment vehicles by investors and investment managers, but mutual funds have certain limitations. For example, mutual fund investors can be adversely affected by the trading behavior of other investors in the same fund. This can increase trading costs, hurt investment performance, and cause taxable accounts to incur capital gains taxes. Additionally, as mutual funds pool investor money to purchase identical positions for all fund holders, they do not afford investors the opportunity to customize their portfolios and reflect their individual differences.


By pooling assets, mutual funds do offer investors some advantages. Through mutual funds, investors are able to efficiently access particular markets and securities that would otherwise be too costly. For accounts with less than five million dollars, DCM believes that domestic bonds and international stocks cannot be purchased directly in a cost-effective manner. In accessing these asset categories, DCM will invest in passive index funds managed by Vanguard. These funds offer modest management fees, low turnover, and ample diversification.


The investment process is not complete without review and monitoring. All portfolios are reviewed monthly by DCM, and significant deviations from initial investment positions may be rebalanced. Portfolio rebalancing, however, is not automatic. The diversification benefits of rebalancing must be continually weighed against the many costs of trading.

DCM clients play a significant role in the review and monitoring process. As time passes, client circumstances may change. These changes must be continuously evaluated, as they could necessitate an adjustment to a client’s investment policy. DCM’s clients must monitor their financial situation, risk and return objectives, and investment constraints and communicate any significant changes to DCM.

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