Listening to one another is a gift that costs nothing but means everything. We know that our time and attention are precious resources, which is why our team here at 228 Main always has our “listening ears” on. 🙏
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It takes all kinds. Really, literally. A versatile team is made from a variety of strengths. Here’s a little glimpse at some of the players we like to see in a balanced portfolio.
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When to buy, when to sell—some believe those are the most important decisions when selecting investments.
But far more consequential for our clients? The portfolio management protocols we use to manage your positions, all the things we might be doing in between the first purchase and the last sale.
This is called rebalancing.
Textbook rebalancing means periodically restoring a holding to a set percentage of the total portfolio value. This means adding shares when prices are lower and paring back when prices are higher. You may see these many, smaller transactions in your accounts when we go through our quarterly trading cycles.
Rebalancing is not about jumping in or out of a position. You may notice over time that we’re generally aimed at buying low and selling high within single holdings. The goal of this discipline is to try to improve overall returns of any holding across the long run—no matter when exactly we got in or when we get out.
Even clients with tenures as short as six or seven years may see holdings where the “net dollars invested” goes negative: as in, the holding has yielded more cash from the sales along the way than ever went into the purchases. And this could be true for shares that might still hold substantial value at the end of their ride.
What may be even more worthwhile, however, are those cases when our timing was “off” in the first place: when to buy. As an example, more than a decade ago our research indicated that copper production was likely to be short of global needs for many years. We identified a copper producer that was, at that time, down by two-thirds from its all-time peak. A bargain, we believed—but then it became an even better bargain.
That is to say, the stock fell. And fell. And fell.
Our outlook did not change, however. We still saw merit in our estimation about the state of copper production globally. So we bought, and bought, and bought in our rebalancing process.
By the time the stock recovered to our original purchase price, we had taken out more than we had ever invested on behalf of clients. Even a misidentified “bargain” can become a historical gain in a portfolio.
The search for good companies to buy is key to what we do. Sorting out when to eliminate a holding is also important. But the work in between—setting and adjusting our percentage allocations and rebalancing periodically to restore those allocations—is where we hope the true value of our work might emerge.
Rebalancing is a great example of the type of activity we mean when we talk about “ongoing portfolio management” and “investment research,” the things that go into our ongoing advisory work.
Rebalancing can help try to mitigate an otherwise disappointing selection, as our average cost per share declines when we add less expensive shares. And it can help us make sure we book profits if we happen to get in on a shooting star. No guarantees either way, but our protocols and discipline have the chance to make both more likely.
Clients, if you would like help reviewing your overall returns by holding in AccountView, call or email us.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
Investing involves risk including loss of principal.
No strategy assures success or protects against loss.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
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By Mark Leibman, Advisor
Our long study of “the market” has taught us that it’s more of a market of stocks, less of a stock market. Each company has its own story and charts its own path. People often use the broad market averages as a shorthand, a quick way to check how things are doing, generally: “the market” might actually refer to the companies listed on the Dow or to ones in the S&P 500, for instance.
But our work is aimed at picking our spots, looking beyond any one average. We’ve talked about this before in more detail, about what it means to invest in the broad market averages or indexes versus what we’re trying to do at 228 Main.
Part of our approach is about spotting the patterns. We keep an eye on parts of the investment universe that seem to run in long cycles. For instance, since 2015, the largest investable companies have dramatically outperformed smaller companies, with more than twice the gains in general. (The biggest of the big are all over the news these days, with hopes and/or hype of AI dominating the chatter.)
A similar thing happened in the 90s, when internet stocks dominated. Their run ended with the “Tech Wreck,” in 2000. Back then, while the big tech stocks got crushed, other parts of the market did much better. In the years that followed, smaller companies did a far better job of delivering gains. In fact, smaller companies outperformed from the market peak in 2000 until about 2015—seemingly, when the current cycle began.
Notice how we’ve said nothing so far about “timing the market.” A strategy that requires precise timing is not sustainable. In fact, it’s impossible: we can’t pretend to know ahead of time the exact right day to change course.
Instead, there is so much potential advantage in preparing for the inflection point, rather than predicting it. We can assemble the building blocks that may be most useful in whatever part of the cycle comes next. After all, the next part of the cycle is always on its way.
Clients, you know I’ve had a lifelong obsession with the markets. Our research team, to this day, is informed by a quest to seek the best bargains and a general principle of avoiding stampedes. It is these things that can potentially help set us up for life on the other side of the trend change, once it happens.
What’s got our attention? The research team at 228 Main is noticing high valuations in the big company indicators like the S&P 500. Market value seems to be concentrated in the biggest companies, perhaps in a way we have not seen since the 2000 inflection point. And we are finding possible bargains in smaller companies, and value stocks, and in other geographies around the world.
They say nobody rings a bell at the turning points… but consider it rung. We believe we’re close enough, that we’re far enough into inflection point territory, you could say.
As a result, our portfolios right now are reflecting diversification that will hopefully make greater sense in the months and years ahead. The future is going to be different than the past, even though we humans tend to believe current trends and conditions will persist.
Owning the 500 or the biggest U.S. equity funds may provide a very different experience in the years ahead. A decade or so of outperformance, megacap versus smaller companies, will sooner or later come to an end.
We believe it’s a great time to rethink the tactics that have worked so well for the past decade. No guarantees, of course. We have a crystal ball, but it does not work. Instead, what has tended to serve us well are the enduring principles we use in our work: avoid stampedes, look for the bargains, own the orchard for the fruit crop.
This is a call to think about it, not a call to buy or sell anything. And second opinions are always available at 228 Main.
Clients, call or write if you or anyone in your life would like to talk more about this.
Content in this material is for general information only and 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. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
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There are many ways to get the job done. Whether the job is getting dinner on the table or investing for retirement, rarely does it ever come down to an ultimatum, something like, “If you can’t stand the heat, get out of the kitchen.”
What if you just need a different recipe?
Join Billy for a walk, as he shares his thoughts about how to switch things up in this week’s message.
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What a journey thus far!
I started at the kitchen table. Bought the office building at 228 Main when I could neither afford it nor afford to pass it up. Struggled and juggled for years. Fit a snowbird lifestyle into the middle of it. Survived personal tragedy, a cruel disease that slowly took the life of my high school sweetheart.
And through it all, we grew. More and more people entrusted more and more wealth to our care. More and more teammates helped me hold up my end of the deal.
They say it is not the strongest or the smartest who survive and thrive, but those who adapt and adjust to change.
But then, there are the things that have not changed. We are a team of four advisors—myself, Greg, Caitie, and Billy—along with two full-time service team members, Whitney and Brenda. All of us serve one book of business. Everyone gets access to the same set of services. One story, one philosophy, one book of business.
You may not recognize how different this makes us. (But you also know I’ve never been one to follow the crowd!)
Many financial advisor shops, however, are a collection of sole proprietors, each on the prowl for new business all the time. There may be other four-advisor shops that work more like four separate teams that happen to compete nearby each other—not like teammates who play together, toward the same goal.
We believe we are organized differently—and better.
With a team set-up, any client can call any one of us. Four advisors, two service team members, one team. No matter who picks up the phone, we’re committed to getting you pointed in the right direction.
That’s what the team means to me, today.
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Clients, this week we’ve got a little behind the scenes tour: what happens in our in-house research process?
Here are some of the things we like to think about (so that you don’t have to!).
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If you’re looking for an excuse to give up, you’ll always find one. How to change the tire and get back on the road.
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How do we get from where we are to where we’d like to be? Sometimes it’s hard to imagine how we’ll close the gaps. The good thing about the big stuff is that we can only get them done one step at a time. We might wear many hats in life, but along the way… we can only wear one hat at a time. 🙏
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