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Advisor Perspectives
Insights into the world of high- and ultra-high net worth investing
January 6, 2009- Vol 3, Issue 1
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Bruce Berkowitz, portfolio
manager for the highly successful Fairholme
Fund, speaks with us about his investment philosophy and the
rationale behind some of his larger investments. Berkowitz explains
why he says "prices are as
attractive as I have seen in my career."
Tom Brakke discusses how advisors should conduct due diligence of fund managers without the luxury of an
on-site visit. Brakke cautions against placing too much emphasis on
past performance in the diligence process, and provides a list of six probing questions advisors can ask to
point the discussion in the right direction.
Each quarter we look at changes in asset
allocation within the $50 billion Advisor Perspectives
universe. In this update, we show that advisors did not rebalance or proactively shift
allocations during the fourth quarter of 2008 and, as a result
of market movements, increased their cash and fixed income allocations,
while decreasing equity allocations.
More articles below.
John Robinson's article, In Defense of
Faux Planners, continues to generate feedback, and we have four new letters to the Editor in
response to Mr. Robinson's article. Robinson
responds to these letters, as well as to those published over
the last two weeks.
Ron Surz provides his award winning
analysis of the US and global markets, calibrating performance during Q4 and during all of 2008. Surz
looks at returns by sector and country, and shows the damage done by overly
aggressive glide paths in target date funds among the three largest fund
families.
Last week's Wall Street Journal carried
an article by an ex-KGB officer,
advocating that the US will eventually split up into six regional
countries. Author and fund manager Vitaliy
Katsenelson, who was born in Russia, identifies the
problems in this thesis, and explains why Russia is a lot more fragile than the US.
Last week's article, Getting all the
Pieces of the Puzzle, discussed trends in portfolio construction and asset allocation.
A reader writes in with several questions and the author of the
article, Ron Surz, responds.
Lastly, we highlight submissions to Advisor
Market Commentaries.
We welcome guest submissions from our readers. For more information, here are our guidelines.
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Bruce Berkowitz: "Prices today are as attractive as
I have seen in my career"
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Bruce Berkowitz is one of the most respected value investors, and his
Fairholme fund has consistently outperformed the S&P 500 over the last
decade. Berkowitz discusses his use of free cash flow yield as the
key metric for firm valuation, and how his analysis leads to his belief
that valuations in the market are as compelling as they have been since at
least 1974.
Read the article
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Due
Diligence from a Distance
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Ultimately, doing
due diligence, whether in person or at a distance, is about knowing what
you know and what you don't. Do you have enough information to
properly appraise the chance of an investment manager filling its
designated role? If not, continue the process or select a passive
alternative for now. As in a game of cards, it only pays to play when
you've identified a clear advantage.
Read the article
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Changes
in Asset Allocations during the Fourth Quarter of 2008
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Asset allocations changed significantly during the fourth quarter of 2008,
as cash and fixed income positions increased, while equity positions
decreased. Rather than being attributable to proactive decisions or
rebalancing by advisors, these shifts were due to dramatic changes in the
market values of the underlying asset classes, as US equities declined by
14.0% and non-US equities declined by 19.3%. Essentially, advisors
kept allocations constant as the equities markets declined, and by default
increased their cash and fixed income allocations.
Read the article
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Letters to the
Editor: In Defense of "Faux Planners" and John Robinson's
Response
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Four readers respond to John Robinson's article three weeks ago, In Defense of "Faux Planners."
Read the letters
Mr. Robinson responds to these letters, as well as to those that appeared
over the last two weeks.
Read the letter
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Perspectives
on 2008 and Beyond
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Unless there's a significant rally in 2009, the 2000s will prove to be the
worst performing US
stock market decade ever, actually losing money for the first time. It will
take a whopping 40% return in 2009 to make investors whole for the
decade. Ron Surz' award winning commentary explores all aspects of
the global markets.
Read the article
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A WSJ front page article highlights a Russian expert, a professor and ex-KGB
agent who predicts that the US will falter and be split up into five zones
and each zone will be controlled by another country like China, Canada,
Mexico, and EU. Alaska
would go to its "rightful" (more like wishful) owner - Russia.
You get the gist. Vitaliy Katsenelson could not contain himself, and
responds with a letter to Mr. Ex-KGB.
Read the article
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Letter
to the Editor - Getting All the Pieces of the Puzzle
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Ron Surz responds to a reader's questions about a number of topics related
to asset allocation and portfolio construction.
Read the article
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Highlights
from Advisor Market Commentaries
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Dr. Charles Lieberman of Advisors Capital Management provides his outlook
for 2009, where he asserts that "Stock market valuations suggest that
stocks are exceptionally cheap, essentially at once in a lifetime
levels."
Read the commentary
John Mauldin of Millennium Wave Advisors looks back at 2008, and discussed
new research by Professors Ken Rogoff and Carmen Reinhart about the course
of recoveries in previous financial crises in other countries.
Read the commentary
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Advisor
Perspectives
Box 380
Lexington, MA 02420
(781) 376-0050
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