Why We Invest the Way We Do

From time to time, we are asked what drives our investment philosophy. Why do we pick the stocks we do? What is the logic behind our selections? And, perhaps most frequently in recent years: why aren’t we chasing the AI revolution?

At Allied, we focus our stock selection on three specific areas: Dividend Aristocrats, Low Volatility names, and Value opportunities.

There are several reasons we fish in these waters:

• Safety First: These categories are typically defensive, providing a critical buffer during market downturns.
• A Smoother Ride: Lower volatility helps our clients—and us—sleep better at night.
• Higher Probabilities: Identifying the "next big thing" in growth is a game of luck that few win consistently. We prefer the higher-probability strategy of identifying high-quality companies trading at a discount.
• Proven Results: Most importantly, these categories have a documented history of beating the broad market over the long term.

The Myth of the “Defensive Concession”

There is a common misconception that a defensive, low-volatility strategy is a concession—a choice to settle for mediocre returns in exchange for a smoother ride.

We disagree. While a defensive approach may not lead the charge in every market environment, history suggests that prioritizing stability is far from a compromise.

This strategy is not designed to outperform in every season. There will always be periods—such as the late 1990s or the current AI-driven surge—where the market is captivated by growth-at-any-cost. During these speculative cycles, defensive stocks often fall out of favor as investors chase momentum.

However, the Allied philosophy is built for the full market cycle. Our goal is to outperform the broader indexes over time, but to do so with significantly less risk. The long-term data remains clear: "boring" companies focused on consistent stability and cash flow frequently outpace the broader market over the long haul.

This commitment to defensive excellence is the core of our firm and is reflected in the three distinct legs of our philosophy:

Dividend Aristocrats

These are companies that have increased their dividend every year for at least 25 consecutive years. Consistent dividend growth acts as a powerful inflation hedge for clients living off their portfolio income.

• The Data: Since 1989, Dividend Aristocrats have outpaced the S&P 500 by an average of 1.5% per year, with significantly lower volatility.
• Prior Articles: The Humble Dividend

Low Volatility

The S&P 500 Low Volatility Index tracks the 100 least volatile stocks in the broad market —typically in the Healthcare, Staples, and Utilities sectors.

• The Data: In a true market anomaly, these lower-risk names have historically outpaced the general index by 0.6% per year since 1972, defying the academic myth that you must take more risk to get more reward.
• Prior Articles: The Low Volatility Anomaly; The Tortoise & The Hare

Value

Value investing is essentially financial bargain hunting - buying high-quality companies trading for less than their intrinsic worth.

• The Data: Value has, historically, outpaced the market, at least up until recently. We believe this is an out of favor period for Value, and as growth "gets ahead of itself,” as it often does, there will be opportunity in value in the coming years.
• Prior Articles: Ratios and Returns

Is your portfolio built for the next market cycle? If the recent volatility in tech or the "AI hype" has you questioning your current strategy, we’re here to help. Whether you are a long-time client or just looking for a second opinion on your investments, we’d love to chat. Call us at (406) 839-2037 to schedule a portfolio review. 

Disclosure: You cannot invest directly in an index, including the S&P 500 Low Volatility Index, the S&P Dividend Aristocrats Index, the S&P 500 Value Index, or the S&P 500.

The views expressed in this newsletter represent the opinion of Allied Investment Advisors, a Registered Investment Adviser. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment or services. The information provided herein is obtained from sources believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results. Investments are not a deposit of or guaranteed by a bank or any bank affiliate. Please notify Allied Investment Advisors if there have been any changes to your financial situation or investment objectives or if you wish to impose or modify any reasonable restrictions on the management of your accounts through Allied Investment Advisors.