Posts Tagged ‘Roller Coaster’
Thursday, February 14th, 2013
by Dan Richards, ClientInsights.ca
Being a financial advisor can be a roller coaster – one week you get a referral that leads to a terrific new client, the next you lose a long-standing relationship for reasons entirely beyond your control. A recent call from a successful advisor looking for advice reminded of the fine line between success and failure.
An engineer by training, Bob came into the investment industry fifteen years ago, today he runs a growing practice focused on mid and high-level corporate executives in the tech and manufacturing industries. Last fall, he invited top clients to a market outlook lunch at a private room at a top local restaurant. He asked clients interested in attending to call him directly to discuss specific questions they wanted to address.
Bob sent out 50 invitations and had about 15 clients say yes, over twice the response to sandwich lunches in his boardroom. (A free meal shouldn’t make a difference to million dollar clients, but experience shows that it does.) After talking on the phone to the clients attending about what they’d like to cover, he mentioned that while this lunch was primarily for existing clients, he did have a few extra spots and asked if they had one friend or co-worker who might be interested in attending as their guest.
Capitalizing on an opening
A client in a senior role at a mid-sized tech company brought along a work colleague, let’s call his guest Jim. Both the existing client and Jim had substantial equity in their firm, while they might not be huge clients currently, they both represent very significant future potential.
The lunch went well with lots of interaction and discussion. Next morning, Bob called his client to get his impressions of the lunch and also to get permission to follow up with Jim. While that follow-up call was politely received, Jim begged off an immediate meeting due to travel and work pressures, but did agree that Bob could add him to his monthly email list and then follow up in January.
Bob connected with Jim early in the new year and they agreed to meet for a casual conversation over a mid-morning coffee at a Starbucks across the street from Jim’s office. Bob got there early to ensure that they got a table in the corner and was waiting when Jim arrived.
After getting there coffees, Bob thanked Jim for taking the time to meet and said that his goal was simply to get to know Jim better, then asked if he had anything in particular he’d like to get out of their conversation. Jim paused, thought for a moment and said, “Not really, no” … and then went on to say: “Before coming over, I glanced at your profile on Linked-In, was a bit surprised to see that the only thing there was your current role without any history or background, so I’d like to hear more about you.”
He then went on to say: “I assume you’ve looked at my Linked-In profile, do you have any questions about my background?” There was an awkward pause while Jim waited for Bob’s answer. Bob first of all explained that updating his Linked-In profile was on his to-do list, but other priorities had got in the way. And he apologized that he didn’t have a chance to look at Jim’s profile before their meeting and asked him to tell him a bit about himself.
Bob and Jim went on to have a cordial conversation. When the meeting wrapped up after 30 minutes, Bob suggested scheduling a time for a more in-depth discussion of Jim’s situation. Jim thanked him for for the offer, but said that while he’d enjoyed the conversation, given how busy he is, he’s not interested in talking further at this point. Jim did agree that Bob could keep on his monthly email list and that he could check back in 12 months, but Bob walked away feeling that what had seemed a promising opportunity had turned cold.
The new expectations for meeting preparation
Bob called me later that day to get my thoughts on how he should follow up with Jim and also what he could learn from the meeting. There were two obvious takeaways from the meeting with Jim:
First, before contacting prospects and certainly before meeting them, advisors will more and more need to get into the habit of first checking prospects’ Linked-In profiles. This is obviously less relevant if you work with retirees, but if you work with business owners or professionals and certainly if you work in the tech space as Bob does, this has become expected behaviour. More and more, not checking someone’s Linked-In profile before calling them or meeting them will send the signal that you’re not serious enough to invest three minutes in basic research. (Note that Bob could have checked Jim’s profile while waiting for him at Starbucks.)
Second, advisors need to get serious about their own Linked-In profiles. I recognize that some firms still limit what advisors can put on their Linked-In profiles (although I’m not clear as to why there should be different standards for Linked-In vs advisor websites), but the industry as a whole needs to adjust to today’s reality here and do it sooner rather than later.
With regard to how to follow up with Jim, I suggested that Bob update his LinkedIn profile and then send Jim a note, thanking him for providing the impetus to move this up Bob’s priority list. This won’t recoup all the ground that was lost, but perhaps will be a beginning.
For advisors who want to know more about how to incorporate Linked-In to your practice, below are links to two articles that appeared last year:
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Tags: Boardroom, Co Worker, Corporate Executives, Email List, Fifteen Years, Impressions, Investment Industry, Invitations, Local Restaurant, Manufacturing Industries, Market Outlook, Next Morning, Private Room, Referral, Roller Coaster, Sandwich Lunches, Substantial Equity, Success And Failure, Three Minutes, Work Colleague
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Wednesday, July 14th, 2010
Many advisors have told me they’ve got a positive response from the quarterly review letters they’ve sent based on the templates I’ve provided.
Here’s a template that can be a starting point for a year end review letter – just remember that to be effective, a letter such as this one needs to feel:
3. backed up by facts
4. easy to read
5. that it reflects the personality of the advisor writing it.
That means you need to take the time to personalize the letter to language and examples you’d use and to reflect your point of view.
Draft year end review letter
December 7, 2009
Looking back - and looking forward
2009 was one of those years that reminded us what a roller coaster the stock market can be – and also of the dangers of conventional thinking.
After the collapse in global financial markets last fall and the resulting pummelling taken by stock markets around the world, the consensus in January was that the worst was behind us. That was a sharp reminder of the danger of conventional thinking – by early March, markets in Canada had declined by a further 15% and the U.S. was down by 25%.
At that point, the consensus shifted and there was growing sentiment that we might be entering a long period of economic stagnation; that’s when we heard respected economic forecasters talk about a one in five chance of another depression. It was precisely at this point that the coordinated stimulus spending by governments around the world finally had an impact and we began seeing signs of an economic recovery. From the market’s bottom on March 9 to the end of November, global markets were up by 50% to 65%.
Thus, 2009 was a sharp reminder that it’s impossible to predict short term market movements.
Instead we need to focus on two key questions:
1. First, what do the prospects for economic and profit growth look like in the mid term – 12 to 18 months and beyond?
2. Second, to what extent are these prospects for growth accurately reflected in today’s prices of stocks and bonds?
Mid term prospects for growth (Customize this to your own point of view)
In building portfolios, we have to start with some core assumptions about the environment we’ll be in going forward.
Noted British historian Paul Johnson has written that at every given point in time, you can always point to good news and bad news – the only difference is the balance between the two and what the media pays attention to.
This paragraph can be deleted if you feel the letter is too long for your clients to read: In early 2000 (at the height of the tech bubble) and the beginning of 2008 (at the top of the real estate and finance bubble), all we read about was good news – almost no attention was paid to any offsetting concerns. By contrast, during market bottoms at the end of 2003 and early 2009, all we saw was the bad news – it’s as if there were no positives on the horizon.
Despite the recovery in the global economy and markets since the early part of this year, the general sentiment and confidence level among many people today is quite negative. Much of that is driven by concerns about the U.S. economy – still the engine of global growth.
And certainly there are lots of things to worry about in the U.S. – stubbornly high unemployment, a housing market that is still depressed (although no longer in decline) and Government deficits.
Without dismissing the short term challenges facing the US, it’s important not to lose sight of some important underlying positives.
In an August cover story on “The case for optimism” Business Week Magazine highlighted a number of reasons to be positive, among them the impact of technology and free markets in emerging economies.
Click here to read more about what Business Week had to say:
And recently two respected columnists at the New York Times, Thomas Friedman and David Brooks, weighed in on both the positives in the U.S. and some of the challenges that America faces.
The bottom line is: In the mid term I believe the positives outweigh the negatives and that the dire predictions about America’s decline are overstated. It may not see the rapid growth we’ve seen in the past but it will see solid growth.
Today’s valuation levels (Customize this to your own point of view)
Being right on our midterm outlook for the economy only helps us if we buy stocks and bonds at attractive prices.
With regard to bonds, at current interest rates of about 3% it is hard to make a case for Government bonds as anything except a safe harbour against more market disruption.
The returns on corporate bonds are more interesting – especially toward the bottom of the investment grade category, which currently yield about 6%. Note that we do have to be very selective here, since companies with low investment grade ratings are susceptible to shocks and downgrades should the economy run into difficulty.
On the issue of valuation levels of stocks, there are lots of academics who have made a career of studying markets. Of these, I follow two in particular – Jeremy Siegel at the Wharton School at the University of Pennsylvania and Robert Shiller at Yale. Between them, they forecast both the technology and the U.S. real estate bubbles.
Robert Shiller believes stocks should be valued based on their average earnings over the past ten years, using what he calls the Cyclically Adujsted Price Earnings ratio (CAPE for short). Employing that measure, at the end of November Shiller calculates the U.S. market’s multiple is 19.5 x times average earnings for the past ten years, within the normal historical range (although at the high end of that range.)
Prior to 2008, you have to go back to 1992 to find the last time we saw this multiple consistently below twenty times average ten year earnings. Throughout the period from 1997 to 2001, this multiple was in the thirties and forties – when the multiple was in its forties, you were paying twice as much for a dollar of earnings as you are today.
Jeremy Siegel is the best known researcher on long term returns in the stock market and author of Stocks for the Long Run, often cited as one of the all-time ten most influential books on investing. Among his claims to fame is an article in the Wall Street Journal at the peak of the tech mania in early 2000, predicting that sector’s collapse.
In September, Siegel did two interviews on long term returns and current valuations, in which he talked about his research and his opinion that stocks offered good value at the time. You can see those interviews below:
Professor Jeremy Siegel on today’s market outlook:
Professor Jeremy Siegel on long term stock returns:
The bottom line from these two experts: While stocks are not as cheap as they were in March, by historical standards they do offer reasonable value.
While we can expect continued volatility in 2010, we do believe that returns on stocks in the period ahead will be in line with historical levels.
The right approach for your portfolio
While my team and I spend a great deal of time focusing on the big picture, the most important issue is how we adapt that view to each client’s individual portfolio.
For older clients, we have always been believers in maintaining conservative, balanced portfolios – that stance protected our retired clients from the worst of the decline in 2008 and early this year. Today, we are focusing on higher quality stocks, as we believe that these will provide the best risk return tradeoff going forward.
In summary, we are cautiously optimistic about the American and the global economy’s ability to work through some of the current issues they face – and believe that valuations on stocks will make quality stocks an attractive investment in the mid term.
We look forward to continuing to work with you in 2010 to ensure you have the portfolio that is right for you – and thank you again for the opportunity to work with you over the past while.
As always, my team and I area always available to talk about any questions that you might have.
In the meantime, best wishes for a relaxing holiday season – I look forward to talking in 2010.
Name of advisor
Tags: Collapse, Consensus, Economic Forecasters, Economic Recovery, Economic Stagnation, Global Financial Markets, Global Markets, Governments, Personality, Point Of View, Profit Growth, Prospects, Reminder, Roller Coaster, Sentiment, Stimulus, Stock Market, Stock Markets, Substantive, Year End
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Tuesday, March 30th, 2010
An important note:
Over the past 18 months, the quarterly templates for a client letter have ranked among the most popular features on this site.
Research with investors has identified the five elements of an effective client letter. It has to be:
1. balanced in outlook
3. short enough for clients to get through comfortably but long enough to be substantial
4. supported by facts
5. indicative of the advisors voice and personality
On this last point, if you like the basic structure of the letter, you MUST take the time to customize it to your own philosophy and outlook — I can’t emphasize this strongly enough.
April 12, 2010
“I have no idea what the stock market will do next month or six months from now. I do know that, over a period of time, the American economy will do very well and investors who own a piece of it will do well.”
Warren Buffet in an interview on CNBC on Friday, October 10, 2008
After the market roller coaster of 2008 and 2009, the first quarter of 2010 has been blessedly uneventful by comparison — the markets ended the first quarter about where they started the year, although up almost 60% from their lows of a year ago.
That said, there is still a cloud of uncertainty that is making many investors nervous.
Causes for concern … and for optimism
Even with the stabilization of the global economy, there’s no shortage of short term causes of concern:
… continued questions on the direction and timing of the economic recovery in the United States and Europe
… US housing prices that are staying stubbornly low and unemployment levels in North America and Europe that are stubbornly high.
… and in late March the deputy director of the International Monetary Fund made headlines as he talked about the need for advanced economies to cut spending in order to reduce deficits.
Here’s a New York Times article about the IMF’s views: http://www.nytimes.com/2010/03/22/business/global/22imf.html?scp=1&sq=lipsky%20imf&st=cse
The good news is that there are offsetting positives, even if the media headlines that feature them aren’t quite as prominent:
… on Monday March 22, the Wall Street Journal ran a story about dividend hikes as a result of rising profits by US companies. The article also mentioned that cash on hand on US corporate balance sheets was at the highest level since 2007.
… on the same day the Financial Times ran a similar story about dividend increases in Europe
… and there’s growing attention to the impact that Germany’s emphasis on manufacturing productivity had in sheltering it from the worst of the economic downturn — and questions about whether this might be a model for other countries. In March the Economist ran a 14 page feature on how Germany positioned itself for success.
Forecasting the future
Whether you choose to focus on the positives or the negatives, there’s broad agreement that the steps taken by governments stabilized the financial crisis that we were facing a year ago — and there is almost no talk today of a global depression.
So the issue is not whether the economy will recover, but when and at what rate –and whether there might be another stumble along the way.
If you look for investing advice in the newspaper or on television, the discussion tends to revolve around what stocks will do well in the immediate period ahead … this week, this month, this quarter.
We refuse to participate in that speculation — when it comes to short-term predictions, whether about the economy or the stock market, there’s one thing we can say with virtual certainty: Most of them will be wrong. Quite simply, no one has a consistent track record of successfully forecasting short term movements in the economy and markets.
Which is why in uncertain times such as today, one of the people I look to for guidance is Warren Buffett.
Advice from Warren Buffett
In an investment industry poll a couple of years ago, Warren Buffett was voted the greatest investor of all time; among the runners up were Peter Lynch, John Templeton and George Soros.
Buffett’s returns are a testimony to the power of compounding. From 1965 to the end of 2009, the growth in book value of his investments averaged 20% annually. As a result, $10,000 invested in 1965 would currently be worth a remarkable $40 million. By contrast, that same $10,000 invested in the US stock market as a whole, returning just over 9% during this period, would be worth $540,000.
In one of his annual letters to shareholders, Warren Buffett wrote that it only takes two things to invest successfully — having a sound plan and sticking to it. He went on to say that of these two, it’s the “sticking to it” part that investors struggle with the most. The quote at the top of the letter, made at the height of the financial crisis, speaks to Buffett’s discipline on this issue.
I try to apply that approach as well — putting a plan in place for each client that will meet their long term needs and modifying it as circumstances warrant, without walking away from the plan itself.
Boom times such as we saw in the late 90’s and scary conditions such as we’ve seen in the past two years can make that difficult — but those conditions can also represent opportunity. Indeed, in his most recent letter to shareholders Buffett wrote that “a climate of fear is an investor’s best friend.”
Five core principles that shape our approach
On balance, I share Warren Buffett’s mid term positive outlook, not least because many of the positives that drove market optimism two years ago are still in place, among these the continued emergence of a global middle class in developing countries like Brazil, China, India and Turkey. This educated middle class will fuel global growth that will make us all better off.
In the meantime, here are five fundamental principles that we look for in money managers and that drive the portfolios that we believe will serve clients well in the period ahead.
1. Concentrate on quality
The record bounce in stock prices over the past year was led by companies with the weakest credit ratings. Some have referred to last year as a “junk rally”, with the lowest quality companies doing the best. That’s unlikely to continue– that’s why I’m focusing my portfolios on only the highest quality companies, those best able to withstand the inevitable ups and downs in the economy.
2. Look to dividends
Historically, dividends made up 40% of the total returns of investing in stocks and have also helped provide stability through market turbulence. Two years ago, quality companies paying good dividends were hard to find — one piece of good news is that today it’s possible to build a portfolio of good quality companies paying dividends of 3% and above.
3. Focus on valuations
Having a strong price discipline on buying and selling stocks is paramount to success — history shows that the key to a successful investment is ensuring that the purchase price is a fair one. Investors who bought market leaders Cisco Systems, Intel and Microsoft ten years ago are still down down 40% to 70%, not because these aren’t great companies but because the price paid was too high.
4. Build in a buffer
Given that we have to expect continued volatility, we identify cash flow needs for the next three years for every client and ensure these are set aside in safe investments. That buffer protects clients from short term volatility and reduces stress along the way.
5. Stick to your plan
In the face of economic and market uncertainty, another key to success is having a diversified plan appropriate to your risk tolerance — and then sticking to it. It can be hard to ignore the short-term distractions, but ultimately that’s the only way to achieve your long term goals with a manageable amount of stress along the way.
In closing, let me express my thanks for the continued opportunity to work together. Should you ever have any questions or if there’s anything you’d like to talk about, my team and I are always pleased to take your call.
Name of advisor
P.S. If you’re interested, here’s a link to Warren Buffett’s 2010 letter to investors: http://www.berkshirehathaway.com/letters/2009ltr.pdf
Tags: American Economy, Climate Of Fear, Cnbc, Compendium, Deputy Director, Economic Recovery, First Quarter, Five Elements, Global Economy, International Monetary Fund, Lows, Optimism, Period Of Time, Roller Coaster, Six Months, Stock Market, Target, Unemployment Levels, Warren Buffet, Warren Buffett
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