Success in this market? Strategy plus behavior equals long-term success

We know you've been watching the markets, as we have been, too. We thought this was a good time to discuss our strategies with you, giving you a glimpse into how we think and how that strategy affects buying, holding, and selling. If you have questions about what you read here, please don't hesitate to contact us. We're always happy to talk with you, particularly when times are tough.


From Jason T. White, Ph.D. Principal/Director of Investments:

With those of us who practice a long-term strategy, it's easy to think that we spend our time monitoring the market, but not much buying or selling. I want to take some time to address this idea because that's the furthest thing from the truth. At Family Investment Center, we regularly review our mutual funds, stocks and other holdings on behalf of our clients and make changes whenever necessary. The managers of the funds that we own also do their own buying and selling. There's nothing passive about our strategy.

With the March Morningstar updates, I am reviewing detailed reports of common managers who manage mutual funds held by many of our clients. I'm betting that I find 50 percent or more annual turnover rates in domestic and international stock funds, and a smaller but still significant level of turnover within bond funds. While we may hold a fund for a long time, within the fund, there is often plenty of movement, with the concept being to make sure the fund continues to meet its objectives. So what sometimes appears to be a passive buy-and-hold strategy really is not, with the notable exception of index funds, which are built to simply mirror the market.

We screen funds and managers, making long-term investment decisions, and adjust those holdings when tenure, expenses, performance or other factors warrant. Within the funds, active management, including buying and selling, is taking place every single day. It just is not immediately transparent to our clients. Some taxable clients may intuit this is going on when they receive their capital gain/loss 1099s, but probably most of these folks don't either.

At the core of our strategy is a long-term, buy-and-hold, low-cost commitment to indexing large- and mid-cap stocks. Our belief is that in most cases, with a few notable exceptions, there is little reason to trade mid-to-large companies, since they are widely followed and the markets are so efficient. But, in the case of smaller, international, bond and other mutual funds, our managers are very active in the markets everyday, working hard to achieve positive alpha, solid returns with acceptable risk, and 4- or 5-star Morningstar ratings. We hire and fire firms with the long-term big picture in mind. When an occasional fund crisis happens, we react swiftly and with certitude.

Plagued by a financial and banking crisis, a sea-change in political norms, and an uncertain global economy, I award high marks to UMB Scout, PIMCO, Dreyfus, Schwab, Sit, Oppenheimer, and other families and funds we own. We have stayed the course, continuing to keep long-term objectives in mind for our clients. I believe this to be a virtue of our system. If I didn't, I would change our "starting lineup" immediately.


From Dan Danford, MBA, CRSP Principal/Chief Executive Officer:

In our marketplace, there is an urgent need for professional advisory services. But it's not totally performance-oriented. People tend to dismiss performance claims as rubbish, anyway (with good reason). Noted author Nick Murray says that more than 80 percent of financial success is behavioral. Saving, investing, and spending are at least four times as productive as choosing the "right" funds or (for that matter) CDs. His argument is that people usually make bad choices when left to their own devices, and those bad choices can't be offset by stellar investment performance. Human nature often responds to greed and fear, unless someone (us!) interrupts it.

We get paid for managing client money - but Murray would argue that our other services are far more valuable. This is a bad time to evaluate, but five or ten years from now, I'm betting that our clients still in the market today will be much better off than the few folks who liquidated, simply because many of those folks will never enter the markets again and, if they do, it will be long after the rally has started.

Now, a few people who got out of the market over the past year might argue that they are much better off today because they ignored our advice. And, that's true. But it's still the wrong measure because their overall financial success isn't properly determined over 2008-2009; it's measured over their entire lifetime. And, if we continue to believe what we have in the past, future bull markets will more than make up for this (horrendous) bear. But you have to be there to recover.

The challenge is to help our current and prospective clients weather this market and come out the other side ready for the future that they wanted. We want to help our clients continue towards their financial goals. We'd love feedback from you on how we can help you meet your goals. What would you like from us? How can we help? If it's a one-on-one consultation, that's why we're here.

We love to see comments from folks we know and are open to answering questions in this space. Our readers benefit from seeing questions answered - many others may have the same questions you do.

Remember, you've got friends with expertise in the market. And when this is all said and done, we'll still be here, still in the market and still someone you can count on for solid, bias-free advice. When you can't count on much else, count on that.

So what are your thoughts? What are your questions? How can we help?