Tag Archive for: optimism

The best private equity opportunity in generations

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“Our database tells us we’re in a multigenerational opportunity to be a private equity investor,” said Martin Grasso, CEO of Pearl Street Capital Group, a private equity fund-of-funds manager. He believes that investors with longer time horizons can get above-benchmark returns without significant volatility. Grasso made his comments as a panelist on “The State of Private Equity: Opportunity Through Crisis,” presented to the Boston Security Analysts Society on November 5.

Data suggests that capital growth and buyout private equity get the highest returns in years with the lowest levels of EBITDA leverage, said Grasso. That’s the situation we’re in now.

It also pays to invest with the best, according to Grasso. Top quartile and top decile private equity fund managers show much higher levels of persistence than long-only public securities managers. In other words, top performers in private equity have a greater tendency to remain top performers. The difference in performance between top and bottom quartile managers is much greater in private equity than among public equity managers.

Implications for advisors:
* Access to top firms is still difficult, so go with a fund-of-funds to gain that access.
* Invest in 10 vintage years and consider some secondary offerings, which are available now that some investors can’t meet their funding obligations as limited partners.
* Best private equity opportunities now are in small-medium companies where there’s less competition and where private equity managers are more inclined to partner with management to “accrete value” and make minority investments.
* Diversify across geography and sectors.


The last two paragraphs of this post were revised on Dec. 7, thanks to some clarifications by Martin Grasso of Pearl Street Capital Group.

Advisors, now’s the time to build clients’ NON-financial emergency funds

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Financial advisors, encourage your clients to set up a non-financial emergency fund, says Kol Birke, financial behavior specialist at Commonwealth Financial Network. The fund will help them to make better financial decisions. Plus, it’ll strengthen their bond with you.

A non-financial emergency fund consists of family, friends, and activities such as volunteering and exercise. These relationships and activities are resources your clients can draw on in difficult times that will help focus their minds on positives, so they aren’t as easily rattled by market downturns or other stresses. 

In fact, psychologist Barbara Frederickson has shown that positive emotions widen individuals’ receptiveness to a broader range of options, so they can choose the best one. If you can help your clients feel more positive emotions, they’re less likely to react to a market downturn by saying “Sell, sell, sell.” That kind of single-minded “Sell” response served humans well when they were fleeing wild animal attacks. It’s less appropriate in today’s complex world.

Advisors can help clients build their funds by asking what activities are soothing, nourishing or enriching.  In other words, what they do to blow off steam, and what do they do that provides most meaning in life.

Now is a great time to raise this topic with clients. They’re past the shock of the market decline. Yet the decline is fresh enough in their minds that they’re receptive to new techniques to make them more resilient emotionally.

A nice side effect of creating positive emotions through your clients’ non-financial emergency funds is that it makes them feel more connected to you. That will serve you both well.

To learn more about this topic, contact Kol Birke at kbirke@commonwealth.com or 781.663.9663.

A financial advisor’s "Cure for Money Madness"

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People are too obsessed with money and need to get over their irrational beliefs about it, so they can focus on living their lives. That seemed to be the main point of Spencer Sherman’s March 19 talk to the Wharton Club of Boston. Sherman is the author of The Cure for Money Madness.

Sometimes it takes a life-threatening experience to make your aware of your money madness. Take the case of Sherman’s friend Billy, who went swimming by himself off a Hawaiian beach. He panicked when he got caught in a riptide. Instead of swimming parallel to the shore, as experts recommend, he headed straight for the beach. Billy thought his life was over. His last thought before he was rescued? “At least I don’t have to worry about my finances any more.” Finally, Billy put his money into perspective.

Your irrational feelings about money, which are rooted in your childhood, spur you to make mistakes, said Sherman. For example, you may feel that your self-worth depends on your net worth. So you may “buy high and sell low” instead of the more desirable “buy low, sell high.” 

Sherman mentioned some techniques for developing a more rational approach. For starters, think about how you’d advise a friend who’s in your situation because it’s easier to be rational about someone else’s money. Would you advise her or him to buy this stock, build this addition to the house, or take this job? Sherman’s book has a section devoted to exercises and he offers presentations and free conference calls on money madness. 

One of Sherman’s suggestions surprised me. He’d like us to ask ourselves “How can we make our current financial situation the goal?” I’m so accustomed to financial advisors focused on growing their clients’ wealth instead of finding satisfaction now. Ironically, he said, when we stop striving for more, we see the possibilities in what we’ve got. The idea of making the most of what we’ve got seems very appropriate today. 

I liked Sherman’s exercise for adjusting to less wealth.
1. Together with your spouse or significant other, write down your spending intentions for 2009.
2. Figure out how to create a great life within the limitations of those spending intentions.
3. Cut your 2009 spending intentions by 25% or even 50%. Get creative about working within those limits. For example, instead of eating out, you could organize potluck dinners and spend more time with family and friends.

If you’re intrigued by Sherman’s approach, check out his website or one of his YouTube videos.


"James Grant: A Positive Lesson from the Great Depression"

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Great price tags on a number of investments are the silver lining of the current recession, according to James Grant, founder of Grant’s Interest Rate Observer. 

Grant shared his “Thoughts on the Financial Markets and the Current State of the Economy” with the Boston Security Analysts Society on February 11. He spoke at length about the virtues of value investing, as exemplified by the Depression era strategies of Floyd Odlum of Atlas Corporation. Today’s investors can learn from Odlum’s strategy of underpaying for assets, Grant said.

Continue reading “James Grant: A Positive Lesson from the Great Depression,” my article in Advisor Perspectives.

Take advantage of a 20% discount on the Managing Retirement Income conference

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You can save 20% on your registration for the conference on “Managing Retirement Income: Creating Solutions to Manage Downside Risk and Adapting Strategies to Preserve Retirement Income in a Shifting Economy” that will be held in Boston, Feb. 9 to Feb. 12.  The discount code should automatically fill when you click on the link above. If not, enter this code:XU2358IW

I’m just passing along this information. I don’t benefit financially if you use the code. But let me know if you plan to attend. Perhaps we can meet during one of the coffee breaks.

"Jeremy Siegel on why Equities are ‘Dirt Cheap’ ”

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“I may be the lone optimist in this market,” said Prof. Jeremy Siegel in a Q&A published in Advisor Perspectives. 

He was responding to a question about his Oct. 31 Yahoo finance column, in which he said, “I would be very surprised that if an investor who bought a diversified portfolio today did not make at least 20% or more on his investment in the next twelve months.”

Are there any other optimists out there?

I like this financial crisis question

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“Can you think of ways that something good in your life can result from the financial meltdown?” 

I like this question, which concludes “Rising from the Financial Ruins” on the HBR Editors’ Blog. It’s probably easiest to answer if you’ve got a financial cushion, or at least a steady job.

Four tips for managing the stock market’s emotional strains

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Your clients may benefit from life coach Cheryl Richardson’s advice on how to minimize the emotional toll of the stock market’s gyrations.

Richardson suggests:

  1. Put limits on sensational, bad news. 
  2. Put limits on your interactions with pesky pessimists.
  3. Fill your head and heart with empowering information and inspiration. 
  4. Become a source of hope and strength for others.  

Read more in Richardson’s Oct. 13 Life Makeover newsletter.

"Client Communications in Volatile Markets" by Harold Evensky

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“The most important thing to communicate is that you are well aware of how scary the markets are and that you understand your clients are worried. However, it is imperative that you also convey a sense of calmness and optimism,” says Harold Evensky of Evensky & Katz in “Client Communications in Volatile Markets.” His article appeared in a special edition of the CFA Institute’s wealth management e-newsletter.

Are you using this strategy? Is it working for you?

Optimism watch: S&P 500 Index and major global events

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If you have a long time horizon, you can survive just about anything. At least, that’s the implication of a graph I looked at today.

Fidelity Investments is showing off a graph called “S&P 500 Index & Major Global Events” in “Putting Short-Term Market Turmoil in Perspective: U.S. stocks have proven resilient over the long term.”

It’s a graph of the S&P 500 index with major events from JFK’s assassination in 1963 to this year’s collapse of Bear Stearns.

The article concludes:  “U.S. stocks have proven to be resilient over the long term. A $10,000 hypothetical investment in a diversified mix of large-cap domestic stocks at the start of 1963 would have been worth more than $865,000 at the end of June 2008.”

$865,000 is a nice big number. But how many investors think in terms of a 45-year time horizon? 

On the other hand, maybe that’s the point. A 45-year time horizon isn’t just for college kids. Even middle-aged folks may live another 45 years.

Does this graph give you comfort?