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Evidence-Based Investing: M.D. Turned Financial Advisor Diagnoses What Ails Most Investors
Date:9/30/2008

Investment Advisory Firm Turns to Medical Professional to Apply Rigors of "Evidence-Based Medicine" to Investing; Why Do So Many of Us Let Advisors Give Bad Advice About the Best Medicine For Portfolios?

ROCKFORD, Ill., Sept. 30 /PRNewswire-USNewswire/ -- Doctors and surgeons are expected to base their diagnoses on what the latest scientific research shows is the best way of dealing with specific diseases and other illnesses. Yet most financial advisors do not operate on the same fact-based standard and, instead, "prescribe" actively managed, expensive and tax-inefficient investments despite the overwhelming evidence that such an approach is dangerous to the long-term financial health of investors.

Financial advisors and their clients could learn a few things from the medical world, according to a major new white paper titled "Evidence-Based Investing: A Scientific Framework for the Art of Investing" from Savant Capital Management, a fast-rising investment advisory firm with offices in Illinois and Wisconsin. Savant is one of the first investment firms in the U.S. to hire a practicing doctor-turned-financial planner to assist clients in applying what it calls "evidence-based investing" to the world of personal finance.

In addition to his work at Savant, financial advisor Brian J. Knabe, M.D., is a clinical assistant professor in the Department of Family Medicine with the University of Illinois.

EBI is based on the concept of "evidence-based medicine," which was first used in the early 1990s. It is an attempt to apply the standards of evidence gained from the scientific method to certain aspects of medical practice in a uniform manner. Evidence-based medicine also seeks to judge the quality of specific evidence as it is applied to the assessment of the potential risks and benefits of a given treatment. According to the Centre for Evidence-Based Medicine at the University of Oxford: "Evidence-Based Medicine is the conscientious, explicit, and judicious use of current best evidence in making decisions about the care of individual patients."

Explaining how this medical standard of practice can be applied to the world of investing, Brian J. Knabe, M.D., financial advisor, Savant Capital Management, Inc., said: "A doctor or surgeon could never ignore the established research in recommending a totally ineffective or even counterproductive approach for a patient. Yet the truth is that most financial advisors and brokers knowingly do this all the time for their clients. Most brokers on Wall Street believe that successful investing involves 'beating the market,' and that the best way to achieve this is through 'actively managed' investment strategies. Evidence demonstrates, however, that this assumption is without foundation. Both the method (the continuous trading of securities for short-term gains) and the goal (beating the market) add risk and expense while delivering a lower overall return compared to investing strategies that neither actively trade nor seek returns greater than the market. Though this is counter-intuitive for many people, the evidence is simply overwhelming."

Brent Brodeski, managing director, Savant Capital Management, Inc., said: "Over the last five decades, there has been a truly quantum leap forward in the understanding of how capital markets work and what specific factors drive investment return over time. High-quality research clearly demonstrates which investment approaches are most likely to succeed as well as those that involve unnecessary risk and are more likely to fail. Even though this research exists and is virtually irrefutable, most investors do not make their investment decisions based on the evidence. To the contrary, fear and greed rather than evidence drive investor decisions. It is amazing how few investors are even aware of the overwhelming body of evidence that exists regarding optimal investing."

WHITE PAPER: DIAGNOSING WHAT AILS CONVENTION INVESTING

The Savant EBI white paper reviews the arguments supporting the conventional approach to investing on 13 fronts. Based on the best-available empirical data available, the Savant white paper uses the EBI method to conclude:

1. Market timing fails.

2. Active money management fails.

3. High costs cause money managers to fail.

4. High taxes negate much of the return generated by active money management, causing even many "winners" to fail.

5. Using past performance to pick money managers fails.

The broad application of Evidence-Based Investing results in the following seven conclusions:

1. Index-based investing optimally delivers market returns.

2. An effective bond strategy, like the three-legged bond stool, reduces risk. Short, intermediate, and inflation-protected bonds protect against most adverse economic scenarios.

3. Small stocks add return and provide diversification benefits.

4. Value stocks offer a return premium globally.

5. Investing overseas enhances diversification and return.

6. Alternative investments, namely REITs and commodities, protect investors from inflation and challenging stock and bond markets.

7. Broad global diversification increases return and reduces risk.

As the Savant white paper notes: "In spite of the growing consensus and clear evidence against active management, the conventional active approach to investing is here to stay. Hopefully, armed with evidence and logic, the number of individual investors who get caught up in this unscientific approach will decrease. Why does the conventional view have such strong staying power? This question was asked by Nobel Laureate William Sharpe in his piece, 'The Arithmetic of Active Management.' His answer follows: 'More often, the conclusions (in support of active management) can only be justified by assuming that the laws of arithmetic have been suspended for the convenience of those who choose to pursue careers as active managers.' For us, the evidence is clear. This evidence presents a scientific framework investors can use to enhance the art of investing".

For the full text of the Savant white paper, go to http://www.savantcapital.com/onwatchmedia on the Web.

ABOUT BRIAN KNABE

Brian Knabe utilizes his experience from the medical field as he works with clients, advisors, portfolio managers, and planners to develop comprehensive planning, investment, and tax strategies for professionals. He is a magna cum laude graduate of Marquette University with an honors degree in biomedical engineering. Knabe earned his medical degree from the University of Illinois, College of Medicine. He also attended the University of Illinois for his family practice residency, serving as chief resident.

Knabe is a clinical assistant professor in the Department of Family Medicine with the University of Illinois. He is a member of several professional organizations, including the American Academy of Family Physicians, the American Medical Association, and the Catholic Medical Association. Knabe recently passed the exam for his Certified Financial Planner (CFP) designation and now works with Savant Capital Management as an advisor.

ABOUT SAVANT CAPITAL MANAGEMENT

With offices in Geneva, Hoffman Estates, Freeport, Rockford and also Madison, WI., Savant Capital Management, Inc. offers investment management, financial planning and family office services to financially established individuals, trust funds, retirement plans, and non-profit organizations. Savant is regularly recognized as being among the top wealth managers in the United States. In August 2008, Barron's placed Savant at #28 on the list of the top 100 independent investment advisers in the U.S. In March of 2008, Savant was named the top independent adviser in Illinois by Chicago magazine. Savant ranked #4 in Illinois in Registered Rep Magazine's March 2008 list of the Top 100 Registered Investment Advisors (RIAs). In 2007, Savant was recognized by Financial Advisor magazine as the nation's 12th-fastest growing wealth managers with in excess of $1 billion in assets under management. For the past seven years, Savant has earned a place on Bloomberg Wealth Manager's Top Wealth Managers List. Savant also has been recognized as one of the nation's top 100 financial advisors by Worth magazine each year since 1997. Since 2004, Savant has been selected by Medical Economics magazine as one of the "Top 150 Financial Advisors for Doctors" in the nation. In 2006, Savant was included in The Wealth Factor -- A Team Approach, a book profiling 10 of the most innovative and respected wealth management firms in the nation. For more information, visit Savant on the Web at http://www.savantcapital.com.

Savant Capital Management, Inc. is a Registered Investment Adviser. This announcement is only intended for interested investors residing in states in which the Adviser is qualified to provide investment advisory services. Please contact Savant Capital Management, Inc. to find out if the investment adviser is qualified to provide investment advisory services in the state where you reside. The Adviser does not attempt to furnish personalized investment advice or services through this announcement. Past performance is no guarantee of future results. http://www.savantcapital.com.


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SOURCE Savant Capital Management Inc., Rockford, IL
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