2009 1st Quarter Letter {Part III}
What We Are Doing? {Early 2009 Game Plan}
Our philosophy is to manage portfolios based on clients’ personal criteria. This is influenced by factors such as a client’s risk profile, portfolio size; legacy positions held in accounts, tax considerations and targeted rates of return. What follows is therefore a broad statement of our thinking, a general statement of how portfolios were positioned in 2008 and our investment posture at this time. Client portfolios may not exactly match our general analysis discussed below.
Many of our investment indicators turned negative in May. This often meant that we had larger than normal cash positions. Irrespective of shorter term considerations we have invested much of this cash, believing that investments made now will be rewarded 12-18 months down the road.
Our current strategy is: (1) Reposition into sectors that we think will benefit over the course of this year. (2) Reposition our core broad market ETFs. We have done this by splitting these sectors, one portion looking for longer term value while the other portion is utilizing in appropriate accounts some of our Targeted Investment Growth strategies to look for shorter term investment opportunities. (3) Take advantage of market dislocations which have given rise to attractive dividend yields. Not only does yield give us some margin of safety but we are also paid to wait if markets churn around in 2009. In general our investment focus has continued to be on ETFs.
It is important to understand that we always have an investment game plan. We constantly evaluate our plan and stand ready to change it when conditions change. So we have given thought to what might occur if last autumn’s investment lows are significantly breached. That scenario would likely mean raising cash levels in client portfolios.
The economy is the early focus of the Obama Administration. The first version of its stimulus package passed the House with no Republican support. Stocks declined once the provisions in the Bill became known. We view this mostly as a trial balloon, a nod to the Administration’s more liberal wing, while the real negotiations are done in the Senate and later in Joint Committee. We likewise similarly view early discussions about any bailout of the financial system. Many constituencies will factor into the final product and there will be no perfect end solution. What is positive is that the full resources of the Federal Government are now focused on this problem and its final outcome will likely have more of a bipartisan backing. This is important because there can be no long term market recovery until the financial system is stabilized.
Now the market must cure itself. Stocks need time to base and rebuild investor confidence. We think this could last 3-6 months and could set the stage for a broader equity rally in the fall. We think when stocks rally it will be broader and move higher than most investors currently anticipate. As we stated earlier we have been using this opportunity to average down in ETF positions that we find attractive and take advantage of tactical situations where applicable. Sectors we find attractive include energy, basic materials, technology, biotechnology and financials-whose ultimate value will be realized in the next several years.
Our philosophy is to manage portfolios based on clients’ personal criteria. This is influenced by factors such as a client’s risk profile, portfolio size; legacy positions held in accounts, tax considerations and targeted rates of return. What follows is therefore a broad statement of our thinking, a general statement of how portfolios were positioned in 2008 and our investment posture at this time. Client portfolios may not exactly match our general analysis discussed below.
Many of our investment indicators turned negative in May. This often meant that we had larger than normal cash positions. Irrespective of shorter term considerations we have invested much of this cash, believing that investments made now will be rewarded 12-18 months down the road.
Our current strategy is: (1) Reposition into sectors that we think will benefit over the course of this year. (2) Reposition our core broad market ETFs. We have done this by splitting these sectors, one portion looking for longer term value while the other portion is utilizing in appropriate accounts some of our Targeted Investment Growth strategies to look for shorter term investment opportunities. (3) Take advantage of market dislocations which have given rise to attractive dividend yields. Not only does yield give us some margin of safety but we are also paid to wait if markets churn around in 2009. In general our investment focus has continued to be on ETFs.
It is important to understand that we always have an investment game plan. We constantly evaluate our plan and stand ready to change it when conditions change. So we have given thought to what might occur if last autumn’s investment lows are significantly breached. That scenario would likely mean raising cash levels in client portfolios.
The economy is the early focus of the Obama Administration. The first version of its stimulus package passed the House with no Republican support. Stocks declined once the provisions in the Bill became known. We view this mostly as a trial balloon, a nod to the Administration’s more liberal wing, while the real negotiations are done in the Senate and later in Joint Committee. We likewise similarly view early discussions about any bailout of the financial system. Many constituencies will factor into the final product and there will be no perfect end solution. What is positive is that the full resources of the Federal Government are now focused on this problem and its final outcome will likely have more of a bipartisan backing. This is important because there can be no long term market recovery until the financial system is stabilized.
Now the market must cure itself. Stocks need time to base and rebuild investor confidence. We think this could last 3-6 months and could set the stage for a broader equity rally in the fall. We think when stocks rally it will be broader and move higher than most investors currently anticipate. As we stated earlier we have been using this opportunity to average down in ETF positions that we find attractive and take advantage of tactical situations where applicable. Sectors we find attractive include energy, basic materials, technology, biotechnology and financials-whose ultimate value will be realized in the next several years.
posted by CR English at 6:50 AM
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