Given that you have already heard my optimistic outlook for the economy and stock market, I’m going to spend most of my allotted time today looking backwards and talking about lessons learned or, in my case, re-learned.
It was suggested that this would be a good form to share the answers to the common questions that I get asked on the road. That sounded like a good idea, but most of the questions relate to core aspects of my presentation and are merely a signal that I put some people to sleep.
Still, the one recurring question that is typically outside the scope of my presentations, which also ties in nicely with what I want to talk about today is: What is the right amount of international diversification in a portfolio? I have an unconventional answer to that question, which I’ll share later.
Good investors are always learning from their mistakes and refining their strategy, so I’ll conclude the presentation by telling you how we hope to use the lessons from the past to do a better job in the future.
Before I get started, Mary insists that I read the disclaimer:
Stock, strategies and situations mentioned in this presentation are for learning purposes only and not intended to boost or deflate anyone’s ego. Alternative views are acceptable and encouraged. The key is to believe in your approach and implement a disciplined strategy with confidence and conviction.
With that, let’s talk about lessons learned.
While there were many lessons learned this last year, I’m going to focus on three that deal specifically with portfolio management – liquidity, balance and quality. My focus is going to be on the importance of quality, but I’ll say a few words about the former.
First liquidity: As markets were falling apart, I think a lot of people realized that they should have had some extra cash on the sidelines. I’m not talking about dry powder to put to use during the downturn, but rather cash to help pay the bills should the tough times last longer than hoped. While we are fortunate that the markets have had a nice recovery in a relatively short period of time, the last thing you want to do is sell assets at depressed prices to pay bills.
I can tell you that I no longer think it is a good idea to have 110% of my account exposed to the equity market.
I’ll even concede that some bonds might make sense, which I think is another lesson that many investors have learnt this past year.
The right amount of fixed income in a portfolio is a tough one because clients are always going to want more equity exposure in a bull market. But I think if you reflect on your own experience and talk to your colleges you will realize that the easiest clients to deal with were those that had balanced portfolios.
Household Age Distribution
This chart shows the distribution of clients and assets by age, both at Odlum Brown and relative to our competitors. Our demographic is the...