We all have it in our nature to be impatient. In a world that seems to be speeding up (by the way, it’s always seemed like that), we all want instant gratification. We rarely see a teenager without a cell phone in their hand. They need to be constantly connected. We go to a restaurant where we want to be seated, then waited on immediately. We have conversations with people who are constantly looking down at their instant messages on their phone (Hey, buddy, my eyes are up here!). And when we invest, we want immediate, eye-popping results. Believe me, I do, too! But I’ve been in the investment business long enough to know that investments run in cycles. Some are great when the market is generally rising, but drop like a stone in a bear market. Then some investment styles fall way behind a rising market but maintain, or maybe even increase their value during a market correction or crash. I started investing for my clients in 1984, when I first became licensed as a securities representative. I was a novice at the time and sold the mutual funds that my higher ups sold to their clients. These were the buy and hold investments that everyone in my business was selling at the time. My computing power consisted of an APPLE II+, on which I spent more time playing games than actually doing any work. There was no internet or email. When I got my license in June of that year, Mark Zuckerberg was just home from the hospital after being born the month before. We still used typewriters and carbon paper. Nobody managed their own portfolios. Stock brokers may have sold individual stocks, but on a commission basis. But mainly every investment sold, whether it was a stock, mutual fund or annuity, was sold with a commission attached. You made your commission then you moved on to the next client. You didn’t get anything for performing good service for your clients. The business model wasn’t built that way. The profession of financial planning was an infant industry and the Certified Financial Planner credential had just been launched.
Fast forward 34 years. Mark Zuckerberg, the founder of Facebook, is worth $50 billion. Financial planning is a mature profession and the CFP credential is the most widely recognized and sought after designation in the industry today. And while the commission-driven salesman is still around, they are now in the minority. If you need financial planning you now seek out a CFP. When you invest with an advisor you normally pay a fee, not a commission. The big upfront commissions are gone now for the most part, except for the salesmen who sell mostly annuities. But the one thing that hasn’t changed very much is the fact that most securities investments that advisors represent are still buy and hold investments. Either that or they sell what’s called separately managed accounts. The companies that create SMA’s may be very good and do a good job of actively managing their client portfolios. The issue with them are the costs involved. If they fill their accounts with mutual funds you have mutual fund fees. The Third Party Manager has to make a fee. Then the advisor has to make a fee. So pretty soon you have costs zooming up to three or four percent. That can be tough to overcome.
Then you have ProVest. We believe in active management. We think a downdraft on values like we had in 2008 can run very rational people out of the market, and keep them out while the market is climbing all the way back up. So the buy and hold philosophy is one that works, but it can take a long time and it can be too gut-wrenching for many to stay the whole time. In active management, though, our portfolios are designed to manage the downside risk that our clients must suffer through occasionally. And when the market is heading straight up without much volatility, we will usually fall behind. But where we can do well is when volatility shows up. And the more we have the better our portfolios are likely to do.
I said all that to say this; Our portfolios are not designed to follow what the general stock market is doing. If the stock indexes go up one day, our portfolios may well go down. Our actively managed accounts are not correlated to the market. And one can become rather impatient waiting for something good to happen in his portfolio. And for the person who’s account seems stagnant, and has been that way for awhile, the amount of experience I have makes little difference. I will definitely be second-guessed. But our research tells me that our accounts do poorly during times of low volatility. But they generally do much better when volatility picks up. This year of 2018 has seen a pickup in volatility. We believe we will see further volatility in 2019 and beyond. So we recommend you hang on, the market is about to get interesting.