investment philosophy

Niche Market of the Mind


In every field of human endeavor, it seems that the best of the best are specialized. From the doctor who specializes in one form of cancer to the CPA who works mainly with trucking companies, specialists rule. In business, the short-hand term is ‘niche marketing.’

Financial advisors may work with people of a specific religion, those with shared hobbies or interests, people who work in a particular field or for a certain company, or a wide variety of other traits or characteristics. If you know us, it should not surprise you that we are different.

Our niche market encompasses retirees and workers and truck drivers and executives and nurses and engineers and teachers and accountants and married couples and widows and single people. At first glance, this may seem to be a poorly defined client group.

But our clients represent a very well-defined group. It is a niche market of the mind.

We work hard to qualify clients by productive attitudes toward investing—and we are not afraid to try to train clients if the right attitudes don’t come naturally. A tolerance for volatility and a fundamental confidence, as a society, we stumble our way through our problems are two of the elements we need to have.

The rewards for pursuing this niche have been amazing. While other advisors cope with massive defections from informed strategy when the outlook darkens, our clients tend to stay the course. We avoid the curse of ‘cash on the sidelines,’ waiting and waiting for that comfortable moment to get back in the game after selling out. We never promise stability, so we spend less time apologizing for the inevitable volatility. In short, we can do our best work for people who are in the best position to profit from it over the long haul.

Is it always easy? Is it always fun? Of course not. The market goes up and down, and ‘up’ is a lot more fun than ‘down.’ Pessimism and optimism ebb and flow, and it can be tough to buck the crowd. Any rational person has to scratch their head in the toughest times and wonder whether they are doing the right thing. But together we have tended to make appropriate decisions.

Good information communicated well helps drive effective behavior. Behavior can help determine investment outcomes. Good outcomes can increase account balances. And we get paid on account balances. This is why we are doing what we do.

We don’t care if you engineered the truck, or drive the truck, or own the trucking company…if you have what it takes to invest successfully, we specialize in you. This is why we strive for a niche market of the mind.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Our Three Principles, or Postmodern Portfolio Theory

© Can Stock Photo Inc. / nahlik

We recently wrote about the conventional investment wisdom, as embodied in Modern Portfolio Theory. No surprise here: we don’t like it. The pie charts, talk of asset classes and correlation…it is all wonderful until it isn’t. Our alternative approach relies on three fundamental principles. We believe they apply in every season.

Our first principle, avoid stampedes in the markets, is based on our understanding that the stampede is usually going the wrong way. There was a stampede into tech stocks in 1999, which ended badly. There was a stampede into real estate in the early 2000’s, which ended badly. There was a stampede into commodities after that, which ended badly. In short, major peaks are usually accompanied by a stampede of money that drives prices to extremes.

Our second principle, seek the best bargains, lets us sort “the market” into its pieces. The three major asset classes are stocks, bonds, and cash alternatives. Cash and its alternatives currently earn practically zero-point-nothing interest rates; bonds are barely better. Diving one level deeper into stocks, we find that some sectors and industries are expensive and others appear to be bargains.

Our third principle is to seek to own the orchard for the fruit crop. Portfolio income is an important component of total returns, and those among us who rely on our portfolios to buy groceries surely understand the importance of cash income. As noted above, interest rates remain very close to zero—we do not believe that bonds or cash alternatives are a good way to generate income these days. But we are currently enjoying generous dividends from many companies in the bargain sectors, including the oil and natural resource companies. Other holdings purchased in past years continue to pay regular dividends, from pipelines to telecom to auto stocks.

We must note that, in actual practice, these principles require patience. One should always know where needed cash and necessary income will come from. Please see our post ‘The Fruits of Investment (link)’ for a fuller treatment of the three principles in action.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Weighing the Bad and the Good

© Can Stock Photo Inc / gunnar3000

If a salesman came up to you on the street and offered you an investment that had only a 54% chance of making money, would you think it was a good bargain? Probably not.

Over the past 65 years the S&P 500 index has had a positive daily return less than 54%. With odds like that, one might think that some skepticism in stock investments was warranted. And yet, over the course of those 65 years, the S&P has risen over 12,000%. Even though it has lost money almost half the time, taking that 54% bet over and over again turned out to be very profitable. At times, market movements feel like they’re going one step forward, one step back—or at times even one step forward, two steps back. But over time, stepping forward 54% of the time is enough to build a great track record.

Past performance is certainly no guarantee of future results. We can only hope that the next 65 years are as good for the market as the past 65. The potential is there, though. And obviously, market volatility does pose obstacles. If you have $10,000 today and you really, really need to make sure you have $10,000 tomorrow, investing in a market that goes down 46% of all trading days is not a very good idea. Investing in volatile markets takes a certain mindset and a longer term investment timeframe. Call or visit us to discuss what investments would be suitable for you.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Ever Notice It Goes “Day-Night, Day-Night, Day-Night”?

Sun setting over the Gulf of Mexico

A long time ago, a toddler posed me the above question. Surprised, I said “What?” and she replied, “The world!” The innocent quest of a three-year-old to observe and understand the world as it is contains a vital lesson for investors. The corresponding question for investors, one that deals with the most basic aspect of the economic and business world and the investment markets, is “Ever notice that it goes up-down, up-down, up-down?”

Cycles and volatility are every bit as central to the investing world as night and day are to the physical world. When the sun sets, we know better than to panic about whether it will ever rise again. When the markets turn downwards it is equally fruitless to worry that they are going to stay down forever.

It is important to have the wisdom to recognize that markets don’t go up forever, either. Investors are lured into bubbles by the notion that the good times are here to stay. How many people did you hear saying “You can’t lose money in real estate” in 2007, or “You can’t lose money in tech stocks” in 2000? They might as well have been saying that the sun will never set.

We know that the market goes up-down, up-down, up-down. While markets may not be as reliable as the sun, we believe that over the long run we can see more “up” than “down.” Part of this is knowing enough to avoid stampedes when everyone else is convinced that a market can only go up-up-up or down-down-down.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal.