Tuesday, February 25, 2014

Not Too Big For The Small Table

It is often said a small business is like a family. Likewise the break-room table is much akin to the family dining room. The typical family, stretching their collective imagination to its limit, could never imagine their favorite rock star, movie star, athlete or politician stopping by for dinner and a few laughs. Much the same, the typical small financial services company would not expect a portfolio manager from the largest mutual fund in the world to spend an hour and a half at the break-room table discussing investments with an audience of nine people.  Yet today we had the pleasure of having a portfolio manager, accompanied by an investment analyst, and a wholesaler, do just that. It’s probably reasonable to assume a large and lavish conference room filled with plush chairs, power suits and power ties is a more typical environment for such an impressive trio. Nevertheless, the enthusiasm for the discussion in our everyday break room was top shelf and they seemed right at home in our familial digs. A visit like this is solid evidence in the confirmation of two things: we are doing things the right way and so are they.

A Pie For All Seasons

I’ve never met an American who doesn’t like at least one kind of pie. So many delicious crusts, cream fillings and meringues to choose from; but for me a pie is all about the fruit filling. Apples, peaches, cherries, blueberries, blackberries and any other delicious fruit that can be stuffed into a pie all have their seasons and climates in which they thrive and produce the best results for pie. Unfortunately, I have not discovered a year round, all season, and all climate fruit that makes a delicious pie. I’ve often thought about creating a “Frankenpie” with a different fruit in each slice but I imagine the results wouldn’t match the dream. I’m sure they don’t call it “Frankenpie” but the primary mutual fund company we work with applies this approach to portfolio management. During a recent meeting with the portfolio manager, he described how the company slices up management of their funds between 3 to 12 different managers per fund. These managers are responsible for their own slices and manage them based on their own style, experiences, convictions, strengths and weaknesses. The result is portfolios that are as naturally diversified as any group of individuals would be and structured to be complementary so that one manager’s weakness in a given investment climate is countered to some extent by another manager’s strength in that same climate. Over time, this approach provides a fund the ability to generate more stable returns in an ever-changing market place. This portfolio management theory is in essence management for all seasons.

Plan Your Attack!

Plan your attack then attack your plan! The key word in this age-old saying is plan. Today is a great day to set some goals, get a plan going and then get going on the plan. The average investor has underperformed the S&P 500 by almost 4% for the last 20 years due to getting in and out of the market at the wrong times*. We feel that this is largely because of a lack of measurable goals. There are many ways to estimate what your required spending will be in retirement planning. Please ask us if you need help with this. These numbers will help you set a savings goal for today. Just remember, if you know where you are going it’s a lot easier to get there. We can help you set your goals, plan your attack and decide if you have financial independence for today and tomorrow. * DALBAR study Quantitative Analysis of Investor Behavior (QAIB) 3/2013