If you went off on safari in September 2008 and had no media contact until yesterday, a quick check of your portfolio and you'd conclude that nothing happened while you were gone. As we all well know, we had a horrific sell-off of all assets in the 6 months through March 2009, followed by one of the steepest rallies of all time. As we have observed
time and time again investors, both individuals and institutional clients, historically "buy high and sell low." A record $72 billion poured out of equity mutual funds in October 2008 on top of $56 billion in September. Those investors who sold equities, corporate and municipal bonds, preferred stock and any other non-Treasury securities in March 2009 captured 13 year lows! The modest inflows since April 2009 imply that investors mostly missed out on the subsequent rally - they will never be able to make up the performance gap.
We were caught off balance by the October 2008 meltdown as much as any investment advisor. However, we stayed true to our principles of:
· Investing in real companies with real products, real revenues and real earnings.
· Avoiding fads (emerging markets, hedge funds, private equity)
· Mixing in fixed income to provide reliable minimum returns, either for clients who are already retired, or clients with short-medium term needs (next 1-5 years.)
· Helping our clients sort between short term and long term needs and allocating riskier assets such as equities to the long term component of their investment allocation (e.g. retirement accounts.)
· Maintaining conservative draw rates on portfolios of no more than 4-7%/year.
· Avoiding the use of leverage, which compels investors to sell not when they want to but because they have to.
As a result, we have fully participated in the rally of the last 8 months and expect our clients to start making new highs in their portfolios (relative to October 2007) in about two years. We are particularly pleased that, among our retired clients, we didn't need to reduce anyone's monthly "allowance" as we draw those monies from bonds and bond funds. Clients who invest monthly or quarterly through systematic investment plans, either with our firm or though their 401K's at work, gained disproportionately.