Nightmare on Wall Street

Nightmare on Elm Street is the name of an old movie, perhaps you’ve heard of it. I’ve heard of it—never seen it. Well, last weeks headline of a weekly paper I subscribe to was “Nightmare on Wall Street.” The U.S. financial crisis is worst than any horror movie and it is having a frightening effect on many. With the S&P 500 stock index down 20.46% in the past 12 months, who hasn’t been affected in some way?

Fortunately, I have very few accounts that have declined anywhere near that of the S&P, and those are limited to clients who chose an aggressive strategy with a small portion of their wealth. My average client is down about 5% over the past year. I feel pretty good about that, considering how brutal the market has been lately—and, also having seen what has happened to some people and their investment accounts this past year—prior to becoming my client.

I use a Tactical Asset Allocation methodology to adjust portfolios for major changes in the market cycle. August of 2007 is when I began reducing exposure to equities. I’ve made a few other changes since than and any new clients coming in have been mostly out of the typical equity positions. Last Friday, and today, I’m making additional reductions in equity positions. I’m protecting your down-side exposure to this market—which I believe will get worst before the year is over.

By the way, I’m making the same type of allocation adjustments in my accounts and my mom’s accounts as I have been making in your accounts. I’ve been through lots of market cycles over the years, but, I’ll have to admit this one has been interesting and I’ve definitely learned a few new things. And, wouldn’t you know it… I’ve added a few more grey hairs to what is left.
Have a great week!

"You have no right to anything you have not pursued."

From Charlie (a fellow member of a business/marketing group I belong to): “About 18 months ago, I told you about a friend of mine, Jim, who went from being an absolute zero in terms of marketing to being named ‘Marketer of the Year’ at his company after only 8 months. I was glad to assist him, introducing him to the basics of our style of marketing. While Jim’s success story was what we like, the past 12 months’ story may be more instructive if less pleasant. About a year ago, response went down from his mailings and Jim got discouraged. He told me that “this ‘new’ kind of marketing” just wasn’t working anymore. I kew this couldn’t be since this ‘new’ marketing has been working for over 100 years. So I probed, to find how quick success turned to failure:

1. Not watching the results. Jim did so well initially he just assumed it would all keep working as it did at first, and didn’t watch the numbers. The numbers told of the need to tweak things, but…
2. Lazy. He stopped at doing only one or two things. Kept using the same two mail pieces until they got stale. Added no ‘touches’, no fence building, nothing except overt asking for business.
3. Cheap. I told Jim that as a friend I would help him get started but that he MUST do the following: join our business group, read the books, etc. – list provided, and invest in his continuing education. He did none of this. Didn’t even read the books I loaned him. He cited ‘time and costs.’ He has thrown away the ability to keep bringing in 6-figures annually and would up right back where he started from. “

My thoughts: I am thankful I never squandered opportunities as Jim did and so many do. Loaned a book, I read it. Told of one, I went and got it. But beyond that I knocked down doors, made a pest of myself, invested money that—at the beginning—I did not have to get knowledge. Charlie has seen in Jim three of about five or six bad behaviors that keep most people decidedly mediocre. It happens all the time. They have very unrealistic expectations about how successful they ought to be in exchange for doing something once but then not continuing to work on it. As if buying a tractor should itself provide the yearly harvest. Not only do you need to actually use the tractor, you better change its oil now and then, sharpen the blades on its tiller, maintain it. And keep looking for better ways of using it. Sophisticated soil analysis so you fertilize each square yard differently based on need rather than using the same fertilizer over the whole farm, evaluating that harvest, making adjustments to improve the next. You can’t be cheap about maintenance of your own attitudes and aptitudes either. It’s common for people to have some early success, doing SOME thing, maybe two, but then stop there. But lazy is the worst. Reading through a newsletter I got a great line: “You have no right to anything you have not pursued.” Big. Ought to be the answer to every entitlement scheme of government, every request for hand-out or help made of you as it becomes evident you are thriving—by your lazy relative, etc. Amongst the lessons Charlie has hopefully learned from his Jim experience: the futility of dispensing free advice.

There's Drama in the Market, But I'm Rehearsing My Scene

This last week I went out to the 6th Street Playhouse and saw the “Music Man.” My wife and I, along with another couple, had a wonderful time. This brought back lots of fond memories. When I was in high school, I was in all the school plays. I played Bo Decker in Bus Stop, Murray the Cop in The Odd Couple, Romeo in Romeo and Juliet, I played percussion for the musical You’re a Good Man Charlie Brown. And, in my senior year, I was the President of our Drama Club. I had lots of fun during these years, but upon graduation that was the end of my acting career. My dad told me I had to go out and make a living for myself. Ha, ha. Good advice from my Dad. Well, anyway, great memories and its fun to go out and see a play now and then. It’s much more fun than going to a movie. Have some fun—go see a play.

Talking about drama… the stock market moves this past week were like watching a soap opera. Who would have thought Fannie Mae and Freddie Mac would need to be bailed out by the government? (Who is going to bail out the government someday?) I think the market will continue to decline and therefore, I’m continuing to make conservative adjustments to investment portfolios.

I'm also in the research and development stages on a new portfolio design, I'm calling it the Green Label Portfolio. It's objective will be to achieve positive annual returns in any market conditions. When I was in the pension management business, we had a portion of the portfolio that had a "Tactical Asset Allocation" style to it--this is much different that a market-timing strategy. This TAA strategy makes moves between a few different asset classes based upon broad moves in the stock market cycle, with an attempt to take full advantage of up markets and protection from the down markets. Anyway, I'm still working on it. If you're interested in knowing more about this, send me an e-mail stating your interest.

Personal note from Monty...

September may always be a month of reflection for me. Not only is it my birthday month, but I lost my dad in September 2005. He lived a good long life (83 years) and then only suffered briefly with cancer. For that, I’m very thankful! Whichever way you want to discuss it or remember it—the passing of your father is a very sad and significant life event. My dad was a good provider, protector and parent—a pretty awesome role-model. And, of course, being a dad myself, I now have a whole new appreciation and perspective of him. I remember going fishing, hunting and hiking with my dad, and of course working with him—most always working. We worked hard together and I’m thankful that he has taught me a good work ethic. I’m sure there were a few “rough” spots over the years where we didn’t necessarily see eye-to-eye, but as I reflect back, all I really see are all the good times. My dad told me that he loved me and I got to tell him I loved him—in words and in actions. As I think back, I think about the significance of the relationship and how I’ll always remember and value him. In the end, what else do we really have than the relationships with those around us and the satisfaction of being a good friend, provider, protector - dad. So why am I saying all this? I’m just saying that I have an increased sense of appreciation for the people in my life, my family, friends and all of you—my clients. There’s no better time than the present to enjoy the people around you.