New Year, Ancient Investment Strategy

The beginning of the year is the time when many people sit down with their financial advisers or otherwise seek advice on their finances. And with the beginning of stock market rocks per year, this impulse might be bigger this time, ie if people do not run and hide.

While no one knows how the year will be played, a lot of so-called experts are lining up to offer their opinions. But how should you weigh what they advise?

Philipp Hensler, president and co-CEO of Vontobel Asset Management, has some thoughts from his academic days. He wrote his doctoral thesis in 2013 on how financial advisors reacted after the financial crisis.

As part of her research, in 2010 she asked financial advisers across the United States what they are doing differently in their consulting practices. Everyone said that the financial crash had been a game changer, but 80 percent of them said they were not doing something different.

The councilors have given motives typical of inactivity: they did not cause the accident; They could not change anything; They believed that the markets could finally heal themselves.

What struck Mr. Hensler was that 20 percent of councilors had used the crisis to rethink their roles. These advisers focused more on the specific concerns of their clients, and not just on investment returns.

This group had three common features. They have been tuned in the current investment environment. They did not support what they had done in the past or what had happened years ago. And when new information arrived, they tried to understand it without compromising.

“Others have made an exogenous event in 2008,” said Mr. Hensler, an event they considered beyond their control. “These counselors made it an endogenous event, they said, ‘It’s part of the system.'”

These councilors had “a high context-sensitive behavior,” he said. The rest was probably part of what he called “the balance of collective collectivity” – they did not want to change what they had done wrong, because everyone was wrong and would not be penalized for that.

This distinction is important, Hensler wrote in his thesis, because the smallest group of consultants persuaded their clients to focus on what they needed the money and had better results for it.

“They were humble, and made them aware of contexts,” he said. “They were not too focused on the market, but more on the customer.”

For investors who rely on consultants, these traits might be important if the markets continue to be disrupted this year, as some experts predict. But relying on consultants alone, even in good times, there is no place, said Norton Reamer, former chief of Putnam Investments, and founder of two savings management companies that has since sold.

In “Investment: A History,” which will be released next month, Mr. Reamer and his author, Jesse Downing, write that more people are able to invest their money today than at any time in history. “But for most of us, we did not jump to the challenges and responsibilities that have been given to us,” said Mr. Reamer in an interview.

He stated that individuals, regardless of their background, were to play a more important role in their financial life. Mr. Reamer, who is 80, has defined four principles to help layperson think about investing.

Think of every investment as something you really possess. Look for the fundamental value in that investment. Use only a moderate financial leverage, such as a mortgage, in your financial life. And pay close attention to how your money is allocated among the investments.

Mr. Reamer easily admits that none of these ideas is new. “The book was not intended to give investment advice, but I could not see that we created such an entity without some guideposts,” he said. “The best way to look at these things is to figure out what’s inside. You can not always do it alone, but you can work with people who do it.”

This too may seem more than many people who want to do it. But Mr. Reamer makes a topic similar to what doctors say to patients: there is only so much that even the best doctors can do if patients do not make their part.

“It’s not reasonable or reasonable for no person to be totally devoid of investment,” he said. “Investment is a key element of human identity. Since resources have grown in the hands of a common man or woman and not of nobility, it has become an opportunity and a responsibility to have a reasonable understanding of what opportunities Investment and risk are “.

As to what to do this year, Mr. Hensler’s recommendations, Mr. Reamer and others were not what someone would describe as hot suggestions. They were sensible suggestions, regardless of the investment environment.

Mr. Hensler stated that people should focus on companies with a strong competitive position and with a high growth in earnings they might understand. And, he said, should avoid overconfident counselors.

“If I was a customer, the counselor I would be away is the mechanical consultant,” he said. “This is the one who has some kind of process,” I ask you three questions and I enter the numbers and take the 50-year average as a presumption. “This mechanical behavior is inadequate at the same time.”

Karl Wellner, president of Papamarkou Wellner Asset Management, managing about $ 3 billion, has made a case similar to Mr Reamer for having examined closely where you are going.

“Just because it says that December 31 does not change the fundamentals,” said Mr. Wellner. “Companies do not change overnight because the calendar says so, we talk about quality, quality wins at the end of the day.”

He added: “More than ever when times are volatile, it is more important to have managed mandates.”

John Apruzzese, Evercore Wealth Management’s chief investment officer, advises richer customers, said he directed all customers to focus on good choices. Building a portfolio strategically is the key to staying on track if the markets become scary this year, he said.

“With regard to the stock market, we can not expect more than one or two years,” said Mr. Apruzzese. “For a longer period of time, securities are the highest return on investment, so it’s a time horizon, which goes back to the construction of the portfolio. You do not want to have such a high percentage of stocks that panic and sell in the bottom.”

Regarding Mr Reamer, with his six decades of experience he offered the safest advice of all: diversification. “Investment theory lessons have shown that diversification is a powerful tool whose benefits to adjusted risks are virtually free,” wrote Mr. Reamer.

This is boring advice, but it can be one of the best when there is so much uncertainty this year.

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