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A Behavioral Approach to Investing

Using Scientifically Engineered Models

The Coming Storm

I rarely do this, but I’m going to encourage our readers to take some time to read an article by one of our competitors (more on that later). I’ve been reading John Mauldin since a client directed me to his weekly e-mail letter in early 2000. His “Thoughts from the Frontline” publication is always on top of my reading list because it is by far the most thoroughly researched newsletter I’ve seen. However, unless you’re a market nerd like me, reading Mr. Mauldin’s newsletter from start to finish, week in and week out is quite cumbersome. For this reason I will typically include exerts of his newsletter when I find something I think our readers need to see.

 

This week, however his letter is so full of information every investor needs to read, I’m going to just post the link to the newsletter below. The title is “Pension Storm Warning”, something I’ve also been discussing over this entire century. Mr. Mauldin uses the example of the government’s preparation for the most recent hurricanes. Citizens in the hurricane zones have lived knowing there was a storm coming, but rested comfortably under the belief the government had told them they were prepared for a “100-year storm”. Despite all the past failures of our government to protect coastal areas from the devastation of a hurricane, citizens express shock when a storm causes far more damage than they thought possible. They then quickly turn their shock to outrage towards the government by not being prepared. We could take this analogy down many paths, including those that were warned to “get out because we cannot help you” who decided to stay and then blame the government for their suffering, but I’ll let Mr. Mauldin carry the discussion.

 

Read “Pension Storm Warning

 

At the outset I described Mr. Mauldin as a competitor. While his expertise has been in market/economic research and writing, this has put him in contact with many bright minds in the investment industry. Earlier this year he launched Mauldin Advisors, which will be a portfolio of four tactical managers inside one account. I’ve looked at the offering and applaud the effort. I believe what we are doing on our Trust Company of America (TCA) platform is superior for most advisors and clients. First, we have 25 years of experience combining trading strategies into portfolios. Over the last several years, we’ve expanded that into a line-up that can include all styles in the investment management landscape using both our own strategies as well as those from other managers.

 

One of the primary reasons we moved to TCA was to have the ability to adapt to whatever the future brings. While I may disagree with some of the predictions Mr. Mauldin makes, the general direction is the same — we are facing a storm of unprecedented magnitude that few will be prepared for. The only thing we can do is find strategies that have the ability to also be flexible and go with whatever trends emerge. We can customize the allocation to provide a portfolio that meets the advisor’s and client’s objectives. One of the best things about TCA is it gives us access to other managers that can be morphed into the portfolio. Dynamic Income Allocation (DIA) actually includes other tactical managers inside the allocation at times. We also have other portfolios for those advisors that want to turn over all asset management to SEM that includes some of the leading tactical managers in the industry — all inside one account. 

The “Mauldin” portfolios will be available to us to use at TCA, but at this point my preliminary due diligence  says it may be worth including one of the managers, but not necessarily the whole portfolio. I still have a lot of work to do in order to figure out exactly what the strengths are of the four managers he has chosen and how they fit with our other portfolios. We have a pretty strong line-up and breaking into it could be tough, but not impossible.

 

Finally, in my eyes Mauldin Advisors is not our competitor. In my eyes, the “competition” is the “Wall Street” firms and those companies like Edward Jones or Wells Fargo that preach a buy & hold portfolio. I’ve looked at dozens of these portfolios for perspective clients and they all have one common theme — they are all banking on the market not going through a prolonged bear market (that “100 year storm”) AND most importantly that the clients do not react emotionally during bear markets and abandon the strategy. My experience and study of market history tells me it is a colossal mistake to hold those assumptions. I want to do everything possible to convince clients of those firms to move before it’s too late. If they end up an Mauldin Advisors or some other active manager with a long-term track record who uses mechanical trading strategies, they are going to be far better off than if they do nothing. 

 

If you haven’t explored our new platform at TCA, I’d encourage you to contact me to schedule a time for a quick call to review our shelter from the coming storm.

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New Kent, VA
Jeff joined SEM in October 1998. Outside of SEM, Jeff is part of the worship team at LifePointe Community Church where he plays the keyboard and bass guitar. He also leads a small group Bible study.