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Halbert Wealth Celebrates 20 Years, I Celebrate 40 Years |
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FORECASTS & TRENDS E-LETTER IN THIS ISSUE: 1. My 40-Year Career in Commodities & Investments 2. My First Major Conclusion – “Buy-And-Hold” is Not the Answer 3. Avoiding Big Losses – That’s What It’s Really All About 4. Niemann Capital Management’s Risk Managed Program 5. Wellesley Investment Advisors’ Convertible Bond Program Overview This year marks the 20th anniversary of Halbert Wealth Management. 2015 also marks my 40th year in the investment business. Since many of my readers don’t know my career history, I thought I would devote this mid-summer issue of Forecasts & Trends to telling my story going back to 1975 when I first got into the investment business. I also want to revisit how and why I came to found Halbert Wealth Management and began searching for professional money managers in 1995, and have continued to do so ever since. If you’re an investor, I think you’ll find this story interesting. I’ll finish out today’s E-Letter by highlighting two of my favorite money managers, each with 19 and 20-year performance records. These two should be strong candidates for almost any well-diversified portfolio. My 40-Year Career in Commodities & Investments In 1975, I received my Master’s Degree in international business at the American Graduate School of International Management (Thunderbird) in Phoenix. I began my career in the investment business that same year (at age 23) as a commodities trader for a major multi-national agricultural corporation, Continental Grain Company. I bought and sold agricultural commodities from Kansas City to South Texas and in several surrounding states. In 1976, I transferred to the company’s futures brokerage unit known as ContiCommodity Services in the Dallas branch. It was there that I became a “hedging specialist.” Working with many of the same customers I dealt with at the grain company, I was able to teach them how they could use the futures markets to hedge their risks on the commodities they produced or consumed. I even wrote a detailed manual on hedging commodities in 1977. Shortly thereafter, I became one of the company’s largest producers in the country.
By 1984, I had founded my own commodities brokerage company, ProFutures, Inc. and enjoyed a lot of success helping regional agribusiness firms reduce their market risks by hedging. Joining me at ProFutures was Debi Benson, who I married two years later and is the mother of our two children. We still work together and will celebrate 30 years of marriage in March. I was perfectly happy with my career at that point, and I had a rapidly growing client base during the 1980s and early 1990s. In 1987, we launched our first multi-advisor futures fund, and in 1991 we launched a second futures fund. Our assets under management were growing rapidly, and I had no thoughts about expanding my business beyond the commodities markets and hedging. Yet in late 1994, I read a study which found that most individual investors in stocks and bonds substantially under-performed the markets year after year – and still do to this day. Surely, this was not happening to my hedging clients in their personal investments, I presumed. In any event, I decided to write about the DALBAR Studies in my newsletter – on the assumption that my sophisticated clients were not under-performing the markets year after year.
While I was perfectly content to continue servicing my clients’ hedging needs in the commodity futures markets, I was also compelled to see if I could be of help to them with their more traditional investments in stocks and bonds. The response was overwhelming! Please help me with my other investments! I never remotely expected such a response. This changed my business in ways I had never imagined. I had to think long and hard about how I could help my clients achieve success with their investments beyond helping them manage their risks in the commodities markets. I took what I had learned in my 18 years in the commodities business and applied that to helping them with their stock and bond investments. So in early 1995, I founded ProFutures Capital Management, Inc. (later renamed Halbert Wealth Management, Inc. as it is known today) and became an Investment Advisor registered with the US Securities & Exchange Commission. My goal was to help my clients with all of their investments, to the extent possible. My First Major Conclusion – “Buy-And-Hold” is Not the Answer As I pondered in late 1994 and early 1995 how I could best help my clients achieve the investment results they deserved, I considered all of the prevailing theories on how to achieve long-term success in investing. I quickly realized the prevailing wisdom was that there is no way to “time” the markets, so the best approach was to buy-and-hold, ride out the gut-wrenching downturns and hope the markets go up over time. Being a contrarian by nature, I questioned that assumption. I looked at studies which showed that many investors could not emotionally hold on during the sometimes violent downturns in the market, and all too frequently bailed out of the market at the very worst times. Conclusion: I had to figure a way around this all-too-often disastrous outcome. Next, I questioned the widely-held assumption that “market-timing” does not work. Market-timing theory suggests that there are times to move out of the market periodically and into cash (money market) during serious downward corrections and bear markets. Yet the reality was/is that most so-called market timers and actively-managed strategies are not successful long-term. But my years of commodity trading told me that just because most market timers had not been successful, that didn’t mean there were not others who have been successful over time. The question was, how do you find the good ones? While not easy, it wasn’t rocket-science to separate the losers and mediocres from the long-term winners. I knew how to do this. The question I had to consider was this: Even if I could find the successful market timers and actively-managed strategies, could I convince my clients to embrace this investment approach – since they had been so successfully brainwashed by the Wall Street Establishment that the “buy-and-hold” forever approach was the only way to go? Without knowing the answer, I decided to go ahead anyway. As we embarked on this journey in 1995, the results were as expected: Most of the market timers and active managers we looked at were not successful. FYI, most of the market timers we look at today are also not successful. So, why continue to look at them? Because we occasionally find the truly successful ones! That’s why we have continually spent a lot of time and money searching for the successful ones since 1995 and still do. Avoiding Big Losses – That’s What It’s Really All About Let’s face it. Buy-and-hold strategies make you accept that you must endure the occasional severe bear markets and hope that you don’t panic and bail out at the worst time – as so many investors do, unfortunately. Successful market timing strategies argue, to the contrary, why not try to avoid the occasional bear markets by moving to the sidelines, or into defensive positions from time to time, as market conditions dictate? This has always made sense to me. As I have pointed out for the last 20 years, it is more important to avoid the big losses than it is to match or beat the market averages every year. Why? Let’s take a look.
As you can see, the larger the loss, the harder it is to recover. You have to make 25% to recover a 20% loss; a 50% loss requires making 100% to breakeven. That’s why avoiding large losses is so important. I think most clients and readers would agree that stocks are riskier today than they have been in many years. Financial risks have risen; currency risks have risen; geopolitical risks have risen with Greece on the verge of default once again, and Japan remains a bug in search of a windshield. China’s stock markets tanked recently. Russia is in crisis due to the implosion of oil prices. And then there’s the Fed which seriously wants to raise interest rates this year. While I don’t often market our services at Halbert Wealth Management in this E-Letter, I am going to make an exception today. With the risks in the markets so high, I feel an obligation to plead my case that you consider the professionally-managed strategies that I have recommended for years – that can move you out of the market from time to time, or hedge long positions. We have been searching the universe of professional stock and bond money managers for the last 20 years. If I do say so myself, we are very good at separating the really good ones from the mediocre and the losers. So I will start with a professional money manager that has been successfully navigating the equity markets for almost 20 years. Niemann Capital Management’s Risk Managed Program Niemann’s Risk Managed Program commenced actual investing in 1996. Risk Managed’s objective is to exploit intermediate stock market trends while also seeking to limit risk. This strategy invests only in domestic equity ETF’s. This program typically holds 10 to 15 positions representing a broad universe of ETFs that Niemann’s proprietary strategy has determined to have the highest potential for gain. In down markets, Risk Managed can move to cash (money market), awaiting another uptrend. Risk Managed can be fully invested, partially in cash, completely in cash, or even partially short as a hedge against existing long positions. It will not go net short. There is no bond or international exposure.
As you can see above, the Risk Managed Program, net of all fees and expenses, has outperformed, the S&P 500 Index since 1996, and it’s done it with a lot less risk. Tell that to the Wall Street types who claim it is impossible to time the market! Risk Managed has an annualized return of 10.8% since its inception in 1996, easily beating the S&P 500 as shown above. What I like most about the Risk Managed Program is that it’s on the long side of the stock market most of the time, but it can move partially or fully to cash (money market) during downward corrections or bear markets. Best of all, this strategy has performed very well this year, even though the S&P 500 has moved mostly sideways so far in 2015. While we always have to caution that past performance is no guarantee of future results, the Risk Managed Program has been a success for almost 20 years. Maybe it’s time you took a serious look at this successful program. Accounts are held at Fidelity Investments. The minimum investment is only $50,000. CLICK HERE for more information and important disclosures. Wellesley Investment Advisors’ Convertible Bond Program Most people don’t invest in convertible bonds because they don’t understand how they work. That’s too bad because there’s real opportunity in this market. Let me state at the beginning that Wellesley’s Convertible Bond Program is NOT a market timing program. Wellesley’s convertible bond investment strategy is a multi-step process based on detailed fundamental analysis of the issuers of these bonds. First, they typically look for convertible bond issues from entities that are financially strong, have attractive “put” and “call” provisions and an appropriate equity premium. Second, Wellesley seeks companies with expanding sales and profits, good management, and positive overall prospects. Third, the overall economic outlook is considered, including interest rate projections, prospects for the given industry, etc. The goal is to select convertible bonds with the potential to produce attractive absolute returns over full market cycles (5 to 7 year periods) with minimal losses.
Given the growing risks in the bond market, and especially the risk of rising interest rates just ahead, investors may be wise to consider a professionally managed convertible bond strategy such as Wellesley’s Convertible Bond Program. This strategy has an impressive 20-year track record in a market that is not highly correlated with stocks or bonds. Again, we have to caution that past performance is no guarantee of future results. Yet Wellesley’s Convertible Bond Program has been a success for 20 years. Maybe it’s time you took a serious look at this successful program. Managed accounts are held at TD Ameritrade. The strategy is also available in a mutual fund. CLICK HERE for more information and important disclosures. Conclusions Niemann’s Risk Managed Program and Wellesley’s Convertible Bond Program are just two of the successful investment opportunities we offer at Halbert Wealth Management. But they are two that I would highly recommend to most sophisticated investors. If you haven’t invested with us because you do not live in our area, let me assure you that is no problem. We have hundreds of clients all across America, and we haven’t met most of them in person. In this digital age, you don’t want to limit your options to just what the local broker or Investment Advisor has to offer. Finally, in case you are wondering, I have my own money invested in the two programs discussed above, as well as with all of the professional Advisors we recommend. If you would like more information on either of the programs discussed above (or others we offer), you can contact us as follows:
In closing I would like to extend my sincere thanks to all of my clients, past and present. It is you who have made it possible for Halbert Wealth Management to celebrate 20 years in business, and for me to stay in this industry for 40 years now. Thank you, thank you! Be sure to read IMPORTANT NOTES below. Wishing you profits,
Gary D. Halbert
IMPORTANT NOTES: Halbert Wealth Management, Inc. (HWM), Niemen Capital Management (NCM) and Wellesley Investment Advisors (WIA) are Investment Advisors registered with the SEC and/or their respective states. Some Advisors are not available in all states, and this report does not constitute a solicitation to residents of such states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. HWM receives compensation from NCM and WIA in exchange for introducing client accounts. For more information on HWM, NCM or WIA please consult their Form ADV Part 2. Officers, employees, and affiliates of HWM may have investments managed by the Advisors discussed herein or others. Disclosures for Niemann: As a benchmark for comparison, the Standard & Poor's 500 Stock Index (which includes dividends) was used. It represents an unmanaged, passive buy-and-hold approach, and is designed to represent a specific market. The volatility and investment characteristics of this Index may differ materially (more or less) from that of this trading program since it is an unmanaged Index which cannot be invested in directly. The performance of the S&P 500 Stock Index is not meant to imply that investors should consider an investment in this trading program, which is actively managed, as comparable to an investment in the “blue chip” stocks that comprise the S&P 500 Stock Index. Performance results are presented net of transaction costs and NCM’s actual management fees. NCM’s annual management fees may vary from 1% to 2.3%. Additionally, mutual funds, Exchange Traded Funds (ETFs) and variable annuities (“Funds”) charge various fees, all of which are disclosed in their prospectuses, along with any potential trading restrictions. Such fees are borne by the shareholders and reflected in the net asset value of the Funds. Some Funds also charge short-term redemption fees and excess transaction fees that are billed to shareholders. Clients pay these fees in addition to NCM’s advisory fees. In selecting Funds in which to invest client assets, NCM considers the nature and size of the fees charged by the Funds. NCM selects a Fund only if NCM believes the Fund’s performance, after all fees, will meet NCM’s performance standards. Consequently, NCM may select funds that have higher or lower fees than other similar Funds, and that charge special fees. When deciding whether to liquidate a Fund position, NCM will take into consideration any special fees that the Fund may charge. NCM may decide to sell a Fund position even though it will result in the client being required to pay Special Fees. In addition, overall performance may be affected by fees charged by the account custodian. Historical performance includes all actual, fee-paying fully discretionary accounts managed by NCM in this strategy. Each composite does not accurately present the performance of any specific account, which depends on investment timing and weighting, among other factors, which vary from account to account. Individual account performance may differ from the composite. Each account included in the composite is added after it has been under active management for at least one full month. A closed account is included through the last full calendar month that it was actively managed. Through April 1, 2010, the performance does not include investment in exchange traded funds. Performance after that date may include investment in exchange traded funds and, as a result, may differ materially. These performance numbers have not been verified by HWM, and therefore HWM is not responsible for their accuracy. Statistics for “Worst Drawdown” are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Any investment in a mutual fund or ETF carries the risk of loss. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency. When reviewing past performance records, it is important to note that different accounts, even though they are traded pursuant to the same strategy, can have varying results. The reasons for this include: i) the period of time in which the accounts are active; ii) the timing of contributions and withdrawals; iii) the account size; iv) the minimum investment requirements and/or withdrawal restrictions; and v) the rate of brokerage commissions and transaction fees charged to an account. There can be no assurance that an account opened by any person will achieve performance returns similar to those provided herein for accounts traded pursuant to the Niemann Risk-Managed trading program. In addition, you should be aware that (i) the Niemann Risk-Managed trading program is speculative and involves risk; (ii) the Niemann Risk-Managed trading program’s performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in the program; (iv) NCM will have trading authority over an investor’s account and the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the Niemann Risk-Managed trading program’s fees and expenses (if any) will reduce an investor’s trading profits, or increase any trading losses. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. “Annualized” returns take into account compounding of earnings over the course of an investment’s actual track record. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic and market environments. Disclosures for Wellesley: For all years up to and including 2009, this presentation reflects only the convertible securities portion of Wellesley's client accounts. Returns are based on all convertible securities held in accounts of all Wellesley clients (including the Miller Convertible Fund) during the periods reflected. Actual client accounts may include positions other than convertible securities. Such other positions are not included in this performance presentation. Accordingly, the actual return of Wellesley client accounts is different, in some cases substantially, from the performance information presented for convertible securities. Wellesley's convertible returns during this period have been calculated using the following methodology. Such methodology includes several assumptions that results from systems limitations on aggregating the convertible security portion of multiple client accounts. Although information has been obtained from and is based on sources WIA believes to be reliable, WIA does not guarantee the accuracy of the information, and it may be incomplete or condensed. Returns do reflect the reinvestment of interest and dividend income, but do not reflect transaction costs. The security’s market value on the last day of the month is determined as is the weight of each security in the portfolio (individual security value/total security value). Each security's return for the month is calculated (monthly interest earned plus/minus monthly price change). It was assumed that the security entered the portfolio on the first day of the month in which it was first purchased. When a security is completely sold out of a portfolio, the prior month-end value is adjusted to reflect the final sales price. Each security's return for the month was weighted by the security's weight in the portfolio. The security’s weighted returns for the month were summed to get the portfolio's return for the month. These numbers were compounded to calculate the annual returns. Beginning on January 1, 2010, monthly returns are size-weighted average returns and have been compounded to calculate annual returns. The performance numbers cited here are for all clients whose account consisted of only cash and registered convertible bonds. Clients whose accounts held 144A non-registered bonds were not included in this presentation. Accounts are included in the strategy for the first full month under management and are removed from the strategy at the end of its last full month under management. When reviewing past performance records, it is important to note that different accounts, even though they are traded pursuant to the same strategy, can have varying results. The reasons for this include: i) the period of time in which the accounts are active; ii) the timing of contributions and withdrawals; iii) the account size; iv) the minimum investment requirements and/or withdrawal restrictions; and v) the rate of brokerage commissions and transaction fees charged to an account. There can be no assurance that an account opened by any person will achieve performance returns similar to those provided herein for accounts traded pursuant to the Wellesley Limited Risk Investing Program. In addition, you should be aware that (i) the Wellesley Limited Risk Investing Program involves risk; (ii) the Wellesley Limited Risk Investing Program’s performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in the program; (iv) Wellesley will have trading authority over an investor’s account and the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the Wellesley Limited Risk Investing Program’s fees and expenses (if any) will reduce an investor’s trading profits, or increase any trading losses. Past performance is not indicative of future results. The performance presented may not be representative of investments held in any client account or performance realized in any one client's account. An investment in convertible securities involves a risk of loss. Returns reflect the deduction of annual management fees, which are deducted monthly for numbers under Net of Fees headings. Fees are deducted quarterly in actual client accounts. The value of an investment in convertible securities may decrease as well as increase. Performance does not reflect the effects of taxation, which results in lower returns to taxable investors. Consult your tax advisor. “Annualized” returns take into account compounding of earnings over the course of an investment’s track record. As a benchmark for comparison, the Barclays Aggregate Bond Index was used. It represents an unmanaged, passive buy-and-hold approach, and is designed to represent a specific market. The volatility and investment characteristics of this Index may differ materially (more or less) from that of this trading program since it is an unmanaged Index which cannot be invested in directly. The performance of the Barclays Aggregate Bond Index is not meant to imply that investors should consider an investment in this trading program, which is actively managed, as comparable to an investment in the Treasury securities, Government agency bonds, Mortgage-backed bonds and Corporate bonds that comprise the Barclays Aggregate Bond Index. Statistics for "Worst Drawdown" are calculated at month end. Drawdowns within the month may have been greater. The returns reflect the reinvestment of interest income and dividend income. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic or market conditions. |
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Almost jokingly, I asked how this could be happening to most investors, but surely not to my clients? Remember, this was in late 1994. The response to that newsletter was nothing less than stunning! Within days, we received dozens of phone calls and dozens of letters from my clients. Almost without question, my clients said that they were the essence of the DALBAR Studies – that they, too, consistently under-performed the stock and bond market indexes in their personal investments. I was shocked!
