There is no typical client. Some are delegators, some are do-it-yourselfers, and some are better described by the term validators. I have learned that our business model is not perfect for all of these folks but as investable assets increase, our style of doing business becomes more attractive. The weight of managing financial affairs in an ever-changing environment just seems to get heavier and heavier.
When prices collectively move higher, clients are drawn to the markets like a moth to flame. They have the support of all their friends, TV personalities, family, and of course the print media. Since our song rarely changes, we have a lot of competition during these periods. Stock prices move higher or stay the same about 70% of the time, so this is a common environment for us to work in….most call it a bull market. But stock prices don’t sit still for the remaining 30% of the time….they move lower. This portion of the market’s emotional roller coaster is called a bear market and is much less friendly for the decision maker. Friends disdain equities as a fool’s game, the media showcases financial failures and family becomes curious about decisions you might have made last week, last month, and last year. So this is what opportunity looks like; as Warren Buffett once opined “a clear horizon in the financial world typically comes at a very high price.”
I have been doing this for 46 years and have probably bought and sold securities every day I showed up for work. That means that like it or not, I invested at every top and sold at every bottom. Building a successful reputation was probably easier than you would think since stocks go up 70% of the time. It became apparent to me very quickly that there was no substitute for quality. Good companies had good management and best of breed products; they weathered all economic storms nicely. No one objected when investors bid them higher; financial success was their destiny and all was well deserved. At P&A we trim these positions when the news becomes too good to be true and diversify the proceeds. Likewise, good companies get punished unnecessarily during selloffs. In the absence of cash, we trim the remaining victories and marshal cash in order to buy the babies being thrown out with the bath water.
Equity prices have been very volatile during the first 45 days of 2016. Although that trend may continue, this is what opportunity looks like. If you have excess liquidity, send it to your account. We will rebalance your portfolio and add to positions that will work to your best advantage. If you do not have any cash, rest assured that we continue to review and rebalance all client portfolios on a quarterly basis.
This is what opportunity looks like.