Financial planners see investment opportunities
The conventional wisdom for investors has traditionally been the more diversified you are, the safer your portfolio. But the last quarter of 2008 spared no one and no market niche.
After markets tumbled from all-time highs in 2007 and everyone bemoaned the slide in their portfolios, local financial planners remined clients that the market has always rebounded.
But communicating that message to every client can be tiring. Retired investors are worried they’ll lose their income. Middle-aged investors worry they won’t be able to retire when they planned. And young investors haven’t seen the market go through a bear cycle before.
More experienced and sophisticated investors are generally less worried than those experiencing a market downturn for the first time, planners said in interviews with CBT. They added that many investors do not realize the opportunity they have as stocks fall to bargain prices. The market rarely provides such an opportunity, they argue, and investors too timid to jump back in could miss out.
While planners anticipate more difficulties in the financial system during the coming months, they remind clients to keep a longer-term view. After all, investment-guru Warren Buffet is buying. Why shouldn’t they?
Tom Baumgardner
Investment Representative, Edward Jones
While many stockbrokers have had the most hectic months of their careers since the markets began to plunge in September, Tom Baumgardner had called most of his clients early in the year. At the outset of 2008, he started to prepare them for a year that would not “be a bed of roses.” After over 40 years as a broker, he didn’t think he was going out on a limb. Turns out he wasn’t.
“There are just some things you know are coming,” Baumgardner said. “Some people can tell you when we’re going to have an earthquake. It’s not because they’ve got the Farmer’s Almanac printed in blue ink. They’ve just been around long enough.”
The trouble that began to emerge in the real estate market late in 2007, coupled with what he said was an obvious dissatisfaction with the political leadership, was enough to make him anticipate significant market turmoil. But even so, the speed and severity with which this downturn hit were unlike anything he’s seen in his lifetime, he said.
Since then, Baumgardner has had to reassure clients there’s not going to be another Great Depression, and he’s had to convince more than one that “You don’t just abandon the equities market!” Younger clients with no experience in a bear market are especially challenging.
“That’s where you, as a broker, earn your keep, explaining to those people that, this too shall pass,” he said.
When asked how long he does think the downturn might last, he had a quick response.
“Better question: How long will it be until the opportunity will have dribbled off the edge of the table?” he asked. “Who makes money? It’s the people who buy at the sale, not the people who buy at the high. What’s Warren Buffet doing? He’s buying!”
Those who don’t invest in 2009, Baumgardner said, will have missed a rare opportunity. Turn off the TV and stop getting your investment advice from the Today Show, he said. Quit reading newspapers and listening to radio shows that try to compare this downturn to 1929 or 1931 or 1987.
“I like to compare this market to the period between 1972 and 1981,” he said, walking to his white board already covered in numbers and dollar signs. He’s obviously used the analogy recently, because he circles a 1972 next to a 1981.
“If you put in $100,000 in 1972 and held it for 10 years, over that same period of time, the market came back to where it was,” Baumgardener explained, connecting the two numbers with a large U. He turned around excitedly: “But, if you invested it properly, that same $100,000 grew to $617,000.”
The point is that things come back around, it just takes the stomach for a downturn, patience and a belief in the system, he said. And common sense can always put you on track for long-term gains.
“Own highly rated and regarded companies in very vital and necessary industries, and within those industries, get the pick of the litter,” Baumgardner said. “You want to be able to see not just as far as you can, you want to be able to see slightly over the curve of the earth.”
Andy Stewart
Waddell & Reed, Managing Principal, Columbia and Springfield offices
Andy Stewart, like every financial planner, has had a busy couple of months. He’s had discussions with all of his clients about their portfolios, putting in the additional time it takes to squeeze in those extra phone calls each day.
“I’ve heard concern from every age group,” he said. “With times like they are now, people need to talk to their advisors.”
But Stewart, while acknowledging that it’s not pleasant to watch your investments slide 30-40 percent, sees the market now as an exciting opportunity. Most money, he said, is typically made coming out of a bear market.
“There is an incredible opportunity right now for people to create wealth,” he said. “This is the best buying opportunity I could see in my lifetime.”
While many investors are fleeing the market and keeping their cash on the sidelines, Stewart is suggesting to clients with larger cash reserves to take advantage of the market today.
“For people whose retirement is 30 years away, they’re really in a great position to buy low,” he said.
Stewart said he’s adjusted many of his clients’ investment portfolios, but most of those adjustments have been suggested by him rather than nervous clients. He’s been able to reassure clients wanting to get out of the market.
“Would you sell your house now, after its value has gone down and buy it back after it goes back up?” he asked. “Warren Buffett, a pretty smart investor, says risk comes from not knowing what you’re doing.”
Stewart got into the financial planning business in January 2001, in the midst of the bursting dot-com bubble and NASDAQ decline. While much of the decline then was concentrated in technology investments, the difference in late 2008, he said, was there wasn’t a safe haven anywhere.
One of the safer havens last year was the bond market, which outperformed stocks as a whole. But Stewart hasn’t suggested clients shift their money to bonds for the coming year. Anything can happen, he said, and anything that happens affects Wall Street.
“It just doesn’t make sense to me to sell a loser to buy last year’s winner,” he said.
For investors looking for a quick return over the next year, Stewart suggests small-cap stocks, which tend to pick up faster as the market increases. Of course, there’s always the chance things can continue to decline over the next year, in which case the small-cap stocks will decline faster than larger companies’ stock.
“Think of it as a Porsche and a semi going down the highway and there’s an accident up ahead,” Stewart said. “Which one’s easier to turn? The smaller vehicle. But when they go down, they bounce a little bit harder.”
Stewart’s advice to investors is to step back, take a deep breath and don’t panic. The S&P 500, he noted, is already up 20 percent from its Nov. 20, 2008, low. “Every day, there are always good solid companies making money,” he said.
Greg Church
Hilliard Lyons, Columbia branch manager
Greg Church, a financial planner for 15 years, said the forces that drive the market can be boiled down to two emotions: fear and greed. And right now, it’s fear.
When things are going well, Church said, no one wants to sell for a profit when they can keep riding along. And when things start to go bad, everyone “jumps on the bandwagon as negative, negative, negative.”
“I tell a lot of people, it’s never as good as what they say it is, and it’s never as bad as they say it is,” Church said.
Church said about 10 percent of his clients have wanted to pull out of the market and go to cash alternatives. This downturn has been different than those in the past, he said, because it took almost everyone by surprise and more people “hunkered down and sold everything in their portfolio.”
While there are opportunities in a bear market, like high dividend paying stocks selling at an all-time low, Church stressed that the most important advice he can give is to keep your portfolio diversified and match it with the risk you can afford to take.
“If you’re an elderly client and you’re retired and can’t risk your principal, you need to be in CD’s (certificates of deposit), treasuries and those fixed-income investments that are the safest you can find,” he said.
Church said the main problem in the market now is the volatility. When the Dow goes up 600 points one day only to drop 800 the next, that’s what really scares people. And the fact that everything from corn and oil, to gold and real estate has been affected is not reassuring either. But the money that has left the market is “going to flow back into the market eventually,” he said.
Even so, there are still too many unknowns to predict when the recovery will begin, Church said. A particular concern of his is how the retail sector will fare in this quarter. There have been reports, he said, that thousands of retailers could close in 2009. He’s waiting to see what happens.
“Christmas kept them going,” Church said. “And now, Christmas is over.”
What about opportunities in the next year? With the incoming Obama administration talking about massive public works spending, investments in construction or infrastructure could be a good bet, Church said. And large-cap stocks seem like a sensible investment in a downturn.
“People are skeptical; they’re scared. Where are they going to go with their money when they invest? They’re going to go with companies that have been around a long time, that provide some sort of good or service that people need,” he said. “Those are typically large-cap companies.”
Once the market stabilizes, he expects people to start reinvesting slowly. But in the meantime, investors should really get to know their planner, if they haven’t already, he said.
“We’ve had several bear markets over the years, and we’ve rebounded out of those and always gone higher,” Church said. “I don’t think there’s any reason to believe that that’s not going to happen again. It’s a matter of when.”