Strategic Investing

Last night I had a discussion with a friend of mine about his financial advisor. His advisor works for a large brand name advisory firm and has many clients. We talked about his performance last year and this year to date. Last year his account was down approximately 40%, and that was with my friend asking him to keep roughly half of his account in cash because he didn’t feel comfortable with where the market was and the current economy. This year my friend picked six stocks that he wanted his advisor to buy for him on his own, and those stocks have brought his account back up to 80% of its original value. As with many traditional managers and advisors, my friend’s advisor bought only individual stocks for his account.

Doubtless, this story is true for many people across the country. I felt the need to share something that I have learned about the different types of advisors in the financial world: typically, an advisor’s personality lends itself to be either great in sales or great in investment analysis. Rarely, is a person talented in both. Based on what you read earlier in this post, do you think the advisor above is a salesman or an investment analyst? I personally know this advisor. He is a great guy, very relational, and legitimately wants the best for his clients. From what I have seen and he has told me, he has a very large number of clients in his book of business, and he spends time meeting with them as well as prospecting for new clients. I get the feeling he does not have much time for studying individual companies their performance.

What I want our readers to understand is that there a several differences in what we do and what my friend’s advisor does. For one, we don’t believe that the old buy and hold strategy in today’s equity market will work long-term. There is too much instability in the economy. Also, we do not limit our portfolios to investing in only stocks and bonds. We believe strongly in alternative investments used by endowments and institutional investors. The endowment model has been our cry from the company’s beginning in 2000. We combine assets in a portfolio that have very little correlation to each other, which reduces volatility and creates more predictable returns. We accomplish this by using other fund managers who are some of the most talented and sought after in their fields. By spending our time monitoring your accounts’ performance as well as each fund manager, it allows us to spend more time caring for you and helping you plan for retirement. The difference compared to our friend described above is we know that we cannot be experts in the different asset classes needed to provide you with true diversification, but we can find the experts and give you access to them.

What we are doing is not new; large endowments have been investing in this manner for years, and their constant steady returns even in a weak economy is a testimony to the strategy. We believe that over time investors will begin wanting more from a manager than buy and hold. This strategy worked well when the country was in a growth stage but a more strategic investment style is needed now. Let us know if you have any questions.