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Advisor Perspectives
Insights into the world of high- and ultra-high net worth investing
February 24, 2009- Vol 3, Issue 8
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A strategy that performed remarkably well
this decade is the all-bond
portfolio, which is what Hildy
and Stan Richelson have been advocating
for nearly 30 years. In our interview with the Richelsons, we explore
the sectors of the bond market they
believe are attractive, and their reasons for preferring individual bonds over bond funds.
Mutual funds earn significantly higher returns on stocks
when their managers are connected to the
companies by social networks. New research shows fund performance improves when a fund
manager shares a common educational
background with corporate CEOs, CFOs, and Board members.
When it comes to implementing an economic recovery, nobody wants to be Japan. The story of Japan's efforts to revive a sputtering economy during its
Lost Decade of the 1990's has become a cautionary
tale for those monitoring the current U.S. economic crisis.
Ron Roge's new book, The Banker and The Fisherman,
offers a host of lessons for advisors and clients in dealing with the uncertainty and stress in the
current environment. In our interview, Roge shares his
views on topics such as how to manage
client emotions and how he is adjusting
asset allocations to reflect current market conditions.
In this guest contribution, author and fund manager Vitaliy Katsenelson looks at normalized equity earnings and valuations.
The good news is S&P "average
case" earnings are about high $70s to low $80s a share,
which would make the market cheap (with
a PE of about 10). But here is the bad news - we just won't see those "average case" numbers for a while.
David Thomas, in a guest contribution, argues that now is not the time to give up on the BRIC markets.
Strong financial reserves, reliance on each other as trading partners, and
a diminishing reliance on the US economy should lead to faster recovery in these emerging markets.
Michael Edesess provides the final word in his dialogue with Rob Arnott over the merits of fundamental indexing. Edesess
asserts that some of Arnott's claims are 100 percent wrong, and that Arnott
has failed to respond to his original arguments.
Ron Surz responds to last week's article about Zvi Bodie and the future of retirement products. Surz says Bodie's
solutions are designed for wealthy clients, and investors with
more modest resources need more
aggressive equity exposures to satisfy their retirement needs.
Lastly, we highlight submissions to Advisor
Market Commentaries, including an interview with economist Nouriel Roubini.
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Hildy and Stan Richelson believe investors should avoid the equity markets
and hold individual bonds. Their clients' portfolios have earned 4.5%
annually this decade, and in our interview they explain the rationale
behind their strategy and how they would structure portfolios in a couple
of test cases.
Read the article
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Who
You Know Counts: Social Networks and Stock Returns
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New research
illuminates the importance of social networks in investment decisions, and
shows one way that fund managers are able to select stocks that deliver
superior performance. When fund managers buy stocks in companies
where they share a common educational background with the CEO, CFO or Board
members, these stocks significantly outperform the market.
Read the article
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Finding
the Lessons of Japan's Lost Decade
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Japan's
infrastructure spending failed to spare that country a decade of economic
malaise, but did it represent a failure of strategy or execution? There's
evidence that the spending did have a positive influence on the Japanese
economy when it was pursued most vigorously, but it was too haphazard and
too quickly abandoned to help Japan
avert the worst of its Lost Decade.
Read the article
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Ron
Rogé on the Banker and the Fisherman
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A banker meets a fisherman in a small Mexican town. The fisherman
shows him the fish he just caught with very little effort. The banker
says he could spend more time fishing and sell some of the fish. In
time, he could expand his business, buy a fleet of boats, build a huge
company, and reap a windfall through an IPO. Then he could retire
move back to the small town and sleep late and still have time to fish a
little. Ron Roge, of R.W. Roge & Co., discusses the lessons of
this parable and its implications for advisors and their clients.
Read the article
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The
Mean Reversion Air Ball: Beware of Head-Fake Rallies
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Despite the recent market decline, the market is still not cheap. According
to Vitaliy Katsenelson, we are not likely to embark onto the new secular
bull market anytime soon. History and data suggest that the choppy markets
that we have seen since 2000 will likely continue. Owning a broad market
index will not pave a road to prosperity. It comes down to not just owning
stocks but owning the right stocks.
Read the article
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Don't
Give Up on the World's BRICs
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Each of the BRIC countries needs to grow - and will continue to - in order
to satisfy the increasing ambition of its huge population to improve
standards of living, increase personal wealth and live a better life. This
century will see the four BRIC countries become four of the six largest
economies in the world.
Read the article
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Michael Edesess' "Last Word" to Rob Arnott on Fundamental Indexing
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Last week, fundamental indexing proponent Rob Arnott asserted that Michael
Edesess had changed Arnott's core assumptions in six places, and offered a
bottle of wine to any reader that could identify them. Edesess
counters by offering an interview for employment at his firm for anyone
that can identify anywhere he materially changed Arnott's assumptions.
Read the article
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Letter
to the Editor: Zvi Bodie's Retirement Solution
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Industry consultant Ron Surz says Zvi Bodie's retirement solutions - which combine
TIPS with Equity Participation Notes - will fail to adequately fund typical
retirement accounts. Surz says an approach such as the target date
funds his firm has designed offer the right balance of exposure to equity
markets and risk reduction as the investor's retirement date nears.
Read the article
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Highlights
from Advisor Market Commentaries
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Chris Whalen of Institutional Risk Analytics interviews economist Nouriel
Roubini on the health of the banking system and whether the Obama
administration's policies are likely to be successful.
Read the commentary
John Mauldin expands on his commentary last week, and explains why risks in
the European banking system are much greater than those in the US system, and the situation is exacerbated by a failure
of the European Central Bank to act aggressively.
Read the commentary
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