Index-Only Investing With a Focus on Goals and Tax Efficiency: A Wall Street Transcript Interview with John F. Osbon, Founder and Chief Investment Officer and Max Osbon, Partner & Operations for Osbon Capital Management

Wall Street Transcript

67 WALL STREET, New York - November 14, 2013 - The Wall Street Transcript has just published its current Investing Strategies Report. This special feature contains expert investing commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Large-Cap, Deep-Value - Disciplined Growth Approach - Bottom-Up Stock Selection - Investing in Financial Services - Index-Only Investing - Corporate Restructuring - Repurchase Activity - Tax-Efficient Investing

Companies include: ProShares Short 20+ Year Treasury (TBF), SPDR S&P 500 (SPY), SPDR Dow Jones Industrial Average (DIA), and many others.

In the following excerpt from the Investing Strategies Report, experienced portfolio managers discuss their methodology for investing in ETF index funds:

TWST: Why did you decide to establish Osbon Capital?

Mr. John Osbon: I founded it for one simple reason: After 25 years of trying to beat the markets on Wall Street, I declared victory and started the index-only ETF boutique that is Osbon Capital in 2005.

Can you explain what that is exactly?

Mr. John Osbon: Indexing, which just got some attention because of the Nobel Prize that went to Eugene Fama, has been around for 20 years. What it means simply is get the market returns that you're entitled to and stop racing, betting and guessing to your detriment.

TWST: It seems so simple, but how do you do that?

Mr. John Osbon: We do that by owning indexes that represent different parts of the market; it could be the 30 Dow stocks, it could be the S&P 500, it could be the 10-year Treasury, it could be gold. You can index literally any investment in the world. As you said, it is pretty simple.

TWST: Why doesn't everybody do this? Why isn't it more common?

Mr. Max Osbon: You would be surprised how many people and how many endowments index. The endowments all do, and the really big investors like Warren Buffett do. They all take large positions in ETFs.

TWST: Is diversification important in your holdings?

Mr. Max Osbon: Yes, it is. We see the diversification as not just looking at the market as the U.S. market but at the world market. We use a full range of diversification techniques. There is diversification by geography, so we can look at Europe, U.S., emerging markets; there's diversification by market cap, so we look at large cap versus the strong case for outperformance in small caps as some examples.

Mr. John Osbon: You can also diversify by style, like growth or value; you can diversify by cash flow, dividends or not; we call it cross-indexing. For us, we do not index one way, we index five ways. That way, in stocks, you end up owning Apple (AAPL) Computer and Exxon Mobil (XOM) and that smallest stock, that pressed ham company in California with a market cap of $2 million.

TWST: How do you begin to look at which ETFs you want to select? What are the factors you're looking for?

Mr. John Osbon: We want to keep and compound our money over time, minimizing taxes in expenses. Those are the criteria by which we begin to look at the thousand-plus ETFs. We use about 50 of them...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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