Insights into the world of high- and ultra-high net worth investing
September 1, 2009- Vol 3, Issue 35
Those readers who would like to know
whether to invest with Democrat or
Republican fund managers finally have some guidance, thanks to a
new academic study. We report the results, along with a host of
reasons why you shouldn't read too much into this data. We also provide the names of the top fund manager
donors to each party over the period from 1992 to 2006.
It becomes clearer every day that the
stock market does not follow a random walk and that there may be
some predictability in long-term returns. But there's little agreement on
how best to make such predictions. In this guest contribution, advisor Joe
Tomlinson takes a look at using
price/earnings ratios to predict future stock market performance.
In the course of a typical week, all advisors and their support
teams have lots of routine telephone interactions with clients. At a
recent roundtable for advisors, a top producing advisor told Dan Richards about a simple step he'd implemented that significantly
increased the mileage from those calls.
A number of readers responded to Geoff Considine's article three weeks ago, What the New Normal Means for Asset
Allocation, including Larry Katz, Director of Research at Merriman, whose response we published last
week. Katz criticized Considine
along a number of dimensions, and in this guest contribution Considine
defends his New Normal asset allocation.
Dougal Williams' article two weeks, A Crash Course in Investing: Six
Lessons from the Market Meltdown, also drew comments from a reader, who challenged the methodology Williams used when he
argued that asset allocation funds have failed to deliver out-performance.
Williams responds to those criticisms and offers new evidence of the
failure in that fund category.
Virtually the entire financial services industry is built upon spending
vast amounts of time, money and other resources on things over which we
have absolutely no control - like attempting to manage investment
returns. In this guest contribution, advisor Russ Thornton shows that, by
focusing on those things you can control, you as a financial planner can
build better, more resilient plans for your clients.
Our August 18 article, Actively Managed TIPS?,
contained a glaring factual error that
we need to correct. In addition, a reader
has challenged some of the assertions in that article, and we respond to
Our letters to the Editor contain
a response to a letter last week regarding a healthcare reform, a response
to our interview with economist Paul Krugman, and some kind words on our
article last week, Building a Practice in America's
Fastest Dying City.
Lastly, we highlight submissions to Advisor
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In a new study, the authors' primary focus was to broadly examine how
political affiliations affect investment decisions. Their key finding was
that Democratic fund managers held less (than Republican and non-donor
managers) in industries that are considered socially irresponsible (e.g.,
tobacco, guns, defense, and natural resource exploration). We look at
the implications of this finding, along with how fund managers fared from
the two parties.
Politics and Fund Managers
P/E's and Predicting Returns
Shiller P/E's have
been excellent predictors of subsequent 10-year stock market performance.
High P/E's (over 20) have invariably predicted poor stock market
performance. With the benefit of hindsight, the all-time high P/E levels of
the late 1990's virtually screamed "lost decade ahead!"
Shiller P/E's and Predicting Returns
for the ECHO in Client Calls
Dan Richards talks to hundreds of successful advisors each year. In his
experience, it's not the big ambitious initiatives that make a difference
in advisors' productivity. It's the little things like consistently looking
for hidden opportunity in every client interaction.
Listening for the ECHO in Client
Thoughts on the "New Normal"
The PIMCO New Normal may or may not play out.
Regardless, there is substantial evidence that attempting to diversify
simply by combining market-cap weighted indexes and judging diversification
based on how many stocks are represented in the portfolio has not been an
effective strategy in recent years, nor is there any evidence to suggest
that it will be in the future.
Additional Thoughts on the "New
Williams Responds: The Failure of Asset Allocation Funds
The percentage of asset allocation funds outperformed by the average index
fund mix falls relative to the comparison using the indices themselves.
Management fees and trading costs-while generally less for index funds than
for actively-managed funds-still matter. The results overwhelmingly favor
Dougal Williams Responds: The
Failure of Asset Allocation Funds
Levers to Financial Freedom
Pushing or pulling on the key levers in financial plans - time, cashflow,
and risk - lets you adapt to changes in the market or in your clients'
circumstances - keeping you in control and ready to adapt to unforeseeable
The Levers to Financial Freedom
Managed TIPS - A Correction
TIPS have gained
increased attention in the last year, as investors fear both inflation and
deflation. The assets of TIPS funds have grown, making the market more
competitive for active managers. As we stated in our original article, both
the homogeneity of the basic TIPS product and the ability of funds to
accurately detect and analyze inefficiencies in the TIPS market with
automated quantitative models should quickly erase inefficiencies and
reduce returns to active funds.
Actively Managed TIPS - A Correction
to the Editor
Our letters to the Editor contain a response to a letter last week
regarding a healthcare reform, a response to our interview with economist
Paul Krugman, and some kind words on our article last week, Building a
Practice in America's
Letters to the Editor
from Advisor Market Commentaries
It is the proverbial rock and the hard place. Cut the stimulus too soon and we slide back into a deeper recession. Let the budget spin out of control for a few
years and we will see inflation return, with
higher rates and a recession. Raise taxes by 1.5-2% of GDP in 2010 and we
are shoved back into recession.
An Uncomfortable Choice by John Mauldin of Millennium Wave
Have emerging market economies decoupled from advanced economies' business
cycles? This column, looking at emerging markets' trend growth rates,
argues that decoupling was always a myth
and that globalization brings national business cycles closer together.
The Myth of Decoupling by Sébastien Wälti of VoxEU
Yesterday's heroes have become today's losers. This experience typifies the
veiled corollary of Markowitz's insight. Proper
diversification is discomforting - it entails constructing a
portfolio with combinations of asset classes and strategies that will tend
to fall in value when others tend to rise and vice-versa. In other words, having some portion of a portfolio invested in
today's losers is an essential element of sound investment
The Discomfort of Diversification by
Michael Nairne of Tacita
in Advisor Perspectives
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