An Alternative to Buy and Hold Investing Show 58


Hello,
I want to do something a little different this week. Today will be one part warning, one part history, and one part our solution. Below you’ll find content that may aid you in your decision-making process.
If you have investing choices to make, the information I cover here may be helpful as you navigate through your retirement planning process. I’m pictured below with my family last weekend.
All of these men have something in common.
  •  Michael Burry
  • Jeremy Grantham
  •  Leon Cooperman
  • Stanley Druckenmiller
  • Kevin O’Leary
I hear from clients every week that our economy can’t continue the way it is going. People are feeling like something has to change, pop, or correct. I got into the financial services business in 2011. The Great Recession was still in the forefront of everyone’s minds, and we worked with a lot of people who were waiting for the other shoe to fall. But it never did.
The government successfully stimulated the economy and bought bonds and created new money through 2014. Interest rates were slashed to make borrowing easier. These measures helped the market grow higher and hit record after record.
Many people saw their 401k and retirement accounts exponentially grow, and today approximately 1,700 people become a millionaire everyday according to a 2016 Fortune article. From 2010 to 2015, the number of millionaires grew by 2.4 million people. This climb in assets is attributable to the government stabilizing the economy.
Michael Burry is a physician, and he was a hedge fund manager. There was a movie called the Big Short made about him because he was the first to see the subprime mortgage meltdown in the mid-2000s. “Burry in June described the markets as the ‘greatest speculative bubble of all time in all things’ and said retail investors were buying into the hype around meme stocks and cryptocurrencies before the ‘mother of all crashes.’”
Jeremy Grantham is an investment strategist and founded a Boston based asset management firm that has $188 billion under management as of 2015. In January he said the market is a “fully fledged epic bubble.” He went on to say, “When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years. We will have to live, potentially, possibly, with the biggest loss of perceived value from assets that we have ever seen.”
Leon Cooperman is a 78-year-old billionaire hedge fund manager and his investment management firm has $3.3 billion in assets under management. In May he said, “Everything I look at would suggest caution, intermediate to long term, would be the rule of the day. When this market has a reason to go down, it’s going to go down so fast your head’s going to spin.”
Kevin O’Leary, the wealthy Shark Tank TV show host, in April said, “The generation that is trading right now has never gone through a sustained correction. It’s coming — I don’t know when, I don’t know what’ll trigger it, but they will learn their lesson.”
Stanley Druckenmiller, is a retired hedge fund manager. When he closed his fund down in 2010, he had over $12 billion in assets under management. In May, “I have no doubt that we are in a raging mania in all assets. I also have no doubt that I don’t have a clue when that’s going to end.”
And therein lies the problem… And now allow me to provide a possible solution.
In the 1950s, economist Harry Markowitz (pictured above) developed a “Modern Portfolio Theory.” His theory aims to maximize returns for a given level of risks. Out of this theory was birthed the idea of buying equities or stocks and holding them. Markowitz won a Nobel Peace Prize for his research.
The Internet did not exist back in the 1950s and was hardly used in the 1990s. But many financial advisors have been trained and have come up in the business using a theory that was developed nearly seventy years ago.
Warren Buffett came along and popularized this style of investing, but then a hedge fund manager named Ray Dalio thought we could track data and do better than buying and holding investments. Many people are stuck investing the way people did seventy years ago, but things have changed. Dalio, pictured below. helped change that.
Ray Dalio
Dalio used computer algorithms to track data that allowed for certain triggers to be activated when trades should be executed. Obviously, a team of asset managers are responsible for managing these programs and the purpose of this investing technique is to mitigate against losses.
This investing method is called algorithmic investing. We use models that have internal algorithms that allows a client’s account to go in and out of positions depending on what’s happening in the overall market, economy, and world. We have developed strategic relationships with well renowned asset managers that manage billions of dollars using these methods.
The days of riding the stock market to the bottom are over. We don’t have to ride the volatility roller coaster due to our algorithmic investing methods.
I routinely talk to people who never recovered from the 2000 to 2010 stock market performance. That decade, commonly referred to as the ”lost decade,” because since the S&P 500 index was created that was the worst decade for the index. You may have had a negative return if you had been invested in an index that mirrored the S&P 500 during that decade.
If you used the buy and hold method you saw years of negative returns, and if you were taking income off of your investments you saw your principal dissipate. Algorithmic investing is a better way to avoid this common pitfall.
Why? Because the goal of investing this way is to lessen the chance that we will have to wait years for our money to break even. If you are using your money to live on or if you like the idea of keeping your principal intact more than you like taking big gambles this may be appropriate for you.
I’d be happy to schedule a 15-minute call with you to discuss this concept more. You may reply to this email or call our office at 864.641.7955 to schedule a call.
Until next week,
David C. Treece,
Financial Advisor
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Clients Excel, LLC are not affiliated companies. Investing involves risk, including potential loss of principal. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the insuring carrier. This podcast is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet particular needs of an individual’s situation. Clients Excel is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Clients Excel.

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