Insights
2008 Reflection - 4th Quarter, 2008
2008 and perhaps 2009 will go down in infamy for many reasons. The area that will most impact wealth management and the content of how we manage assets will also be uniquely different. The bull markets of the 80’s and 90’s had created a population of stock market and Wall Street fanatics that expected only higher highs.
History tells us a very different story (see charts from pages 5-10 of our advisor review). See how traditionally markets have suffered vast volatility swings indicating a much different perspective than we have ‘trusted’ over the two decades from 1980 to 2000. It is our belief that traditional Asset Allocation Models will require a more dynamic or tactical approach.
In words of Warren Buffet…. “The Noah Rule: Predicting rain doesn’t count; building arks does.” Therefore, we must build strategic models based on demystifying investment myths.
* Traditional diversification > Overdone => de-worse-ification
* Asset allocation > It’s not about filling “style boxes”
* Expense ratios > Overrated
* Inflation > A threat to wealth again?
* Bond investing > Not the same anymore – No longer a retirement savior
* Hedge funds > Growth explosion=>implosion?
* Volatility > Learn how to use it to your advantage
* Generating solid long-term > Aggressive investing may not be necessary returns
(i.e. the tortoise may beat the hare)
* Buy & Hold Investing > Prepare to be active when necessary
Often the problem is not getting new ideas heard, but getting the old ones out!
Target Strategies:
- * Be flexible in the investment approach;
- * Be adaptive to changes in the global economy and markets;
- * Be opportunistic but not aggressive;
- * Avoid “style box” thinking in portfolio construction;
- * Find bull markets wherever they exist (via long or short investments);
- * Capture as much of the market’s upside and as little of its downside as possible;
- * Keep losses short in duration and shallow in magnitude;
- * Targeted outcome: long-term success regardless of market conditions.
There is opportunity in every market and it is our job to find those opportunities.
Current thoughts for 2009:
- - Buy or Hold Index ‘Shorts’ – Controls market volatility;
- - Buy or Hold Gold – Hedge as the Fed continues to print money - plus it’s a solid commodity;
- - Buy energy Stocks – Solid companies trading towards lower end of the price valuation;
- - Build into Large Cap companies during the year that are global, infrastructure-related companies;
- - Build up Bank/Financial holdings;
- - Gradually add Small Cap and Emerging Markets companies;
- - Rotate short term bonds and CD’s to High Yield Bonds;
- - Buy Real Estate.
Note: Every portfolio structure should be designed with each clients risk perspective in mind. Whether personal wealth or retirement 401(k) assets, you must keep a flexible attitude towards all markets and alternative strategies. We will be sending, or delivering at client meetings, a more detailed guide for you to review along with a hypothetical time table. In closing, I think Benjamin Graham* said it best: “There are two requirements for success in Wall Street. First, you have to think correctly; and second, you have to think independently". We welcome your thoughts, questions and concerns. Please don’t hesitate to contact us.
To A Successful 2009!
William B. Smith
*Benjamin Graham was an influential economist and professional investor whom Warren Buffet is a disciple.
Securities offered through Triad Advisors. Member FINRA/SIPC