Articulating your Investment Process

This is the second in a series of articles on Unpacking the Investment Process, which provide clarity about various aspects of the investment process of a professional investor. Here we talk about articulating your Investment Process.

Our first article was about clarity of definitions. We highlighted a wide-spread frustration throughout organisations due to the difficulty of agreeing definitions across countries, between departments and within teams, and noted:

It’s like everyone speaks a different language

The use of a common language is one of the first things we look for when consulting to an Investment Management Firm about their Investment Process.

The language of a team can be so telling. We have noticed that the more aligned the language of a team, the more consistent their Investment Process.

But let’s not get too far ahead of ourselves. So you know what we are talking about, let’s define a few things.

[definition] An Investment Decision is a decision to buy, sell, hold or not hold a specific Investment.

[definition] The Investment Process of an Investor is the set of steps they typically take to make each Investment Decision.

Note: The definition of any term that is Capitalised can be found in the appendix at the end of this article.

The language of Investment Process

Let’s build on this and look at how clarity of definitions can help Investment Managers articulate their Investment Process. We know this is very useful for both internal and external communication.

Internal communication

An Investment Process typically involves many Investment Professionals, from Portfolio Managers to Research Analysts, Strategists, Economists and Quants, to Dealers and Traders.

Having them each referring to the same thing the same way saves much time, reduces conflict and angst and decreases the potential for errors.

External communication

Managing client expectations is easier when you are able to agree a common language. If your marketing team, your sales team, your client services team, your relationship managers and your Portfolio Managers all refer to the same thing the same way, it increases trust with your client. Your goodwill will increase. Your overall relationship will improve.

More clients. Happier clients.

Notwithstanding, of course, that many other things contribute to this as well.

Unique and Common

Every Investment Management Firm, and indeed each of their individual Portfolio Managers, has their own unique Investment Process. The way they do things, the bits they regard as more important, the nuances of different aspects of their approach, the urgency of different decisions, their structured nature, their overall consistency.

However, by taking a step back from the specific granularity of each unique process, we find that each Investment Process has much in common. Their distinct phases are quite similar. The questions they are trying to answer are quite similar.

It’s what we have in common that binds us.

ACE approach to Investment Process

Here we introduce a method to help get clarity across an organisation, between departments and within teams. It is also very useful for ensuring consistency across time, and to allow for fine-tuning as an Investment Process evolves.

This diagram introduces our ACE approach to articulating an Investment Process. ACE has three phases, Assessment | Construction | Execution.


Each phase has different questions to answer.


The Assessment Phase seeks answers to the questions What? and Why?

  • What will we assess? A country? An industry? A stock? Why are we assessing it?
  • What have we concluded? Why have we concluded it?

ace-CThe Construction Phase asks the question How Many?

  • How many shares will I buy?


ace-EThe Execution Phase poses several questions When? and Where? and How?

  • When will I execute? Where will I execute? How will I execute?

A common framework

To a greater or lesser degree, every Investment Process:

  • has these three phases in common
  • seeks to answer these same questions

We find that by being able to express your own Investment Process using the ACE Investment Process as a framework, you will be better able to articulate your own Investment Process.

And remember, the more aligned the language of your team, the more consistent your Investment Process.


Appendix: Definitions

We recently proposed that Definitions are the Tools of Clarity. Thus we provide all definitions used in this article.

[generic definition] An Investment is a thing worth owning as it is expected to generate a positive return in the future. Common investments include stocks, bonds, property and mutual funds.

[definition] An Investor is any person or entity who commits capital with the expectation of receiving positive financial returns from their Investments.

[definition] An Investment Decision is a decision to buy, sell, hold or not hold a specific Investment.

[definition] The Investment Process of an Investor is the set of steps they typically take to make each Investment Decision.

[definition] An Investment Management Firm is a specific type of Investor. It is a regulated organisation that is accountable for making Investments on behalf of its clients. Also known as an Investment Manager.

[definition] A Portfolio Manager is a person working for an Investment Management Firm who is responsible for making Investments on behalf of its clients.

[definition] An Investment Professional is a person working for an Investment Management Firm who is involved in its Investment Process, and may include Portfolio Managers, Company Research Analysts, Credit Analysts, Strategists, Economists, Quantitative Analysts, Risk Managers, Dealers and Traders.

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