Stockbridge Private Wealth Management

Personalized Financial Strategies for a Secure Retirement

Recent News

Actively Managed Robo Advisor Live

By

This is a guest post from momentumstrength.com

Actively Managed Robo Advisor live!

Awesome new Actively Manged Robo Advisor using momentum strategies went live recently.  Check out their site!  Use Access Code: MomentumStrength to get a free portfolio and fee comparison.  I think you’ll be blown away by what your portfolio is missing.

They make a great point: all the other Robo Advisors use passive strategies (Wealthfront/Betterment, etc.)  That does nothing to protect from big losses and drawdowns (which are often -50% and can take only months to occur).  Frankly, Wealthfront and Betterment are a waste of money.  You can go to Vanguard/Schwab direct and skip the management fee all together.

AnytimeWealth is low cost and low min’s, like the other robo advisors.  BUT AntyimeWealth uses momentum investing strategies that can

  1. outperform the market during uptrends, and
  2. (more importantly) protect from big losses that occur every 5-10 years.

This is what I love most about them: their reason for existence. They want to help as many people as possible use momentum investing.

Why?

So they can get better returns with lower risk

Why?

So the average American can reach their goals faster

Why?

We all are working against finite amount of time

Why?

Time is our most precious resource.  Don’t waste it getting average returns

Momentum Strategy Updates: November 2015

By

A Quick Update for November.  Hope you had a Happy Thanksgiving!  Time for us at Stockbridge to shake off the turkey coma and get back to business!

In our Global Momentum strategy we were in US Large Caps (VTI) and enjoyed a +0.6% return.  Turns out that was slightly better than the S&P, and only 2nd to US Small Caps for the month.  More importantly, it kept us out of Europe (-0.8%), out of Emerging Markets (-2.3%), and out of High Yield Bonds (-2.6%).

That’s why we do what we do… whereas passive strategies invest in all markets, all the time.  Does that even make sense?  Clearly there’s a better time to be in different markets, and that’s how we earn our keep.  For those of you that were my previous clients at the bank, it’s times like this that really solidify WHY we manage funds this way…it’s just a better way and you all get to enjoy those benefits.

In the bond world we utilized long-term treasuries and unfortunately lost a slight -0.34%. In Bonds, this was a month of focusing on minimizing losses (vs maximizing gains) as every bond sector was negative for the month.  Even short-term treasury bonds, which is often a proxy for money markets, even lost -0.26%.  Surely, our intention is to be cautious for December as the mid-month Fed meeting will be here before we know it.  I’ll mention what I did in the last newsletter: if you have bond funds held outside of Stockbridge, we’re happy to analyze your risk potential if interest rates rise in a few weeks.  Just let us know ahead of time and we can give guidance.  But don’t wait until it’s too late!!!!

Our Sector Rotation portion performed twice as well as the stock market, raking in 1.2% as Information Tech stocks keep rising.  Interestingly enough, of the 11 Sectors that make up the US Stock Market, 6 were negative and 5 were positive.  So it’s month’s like this where it pays to be nimble (something the big bank investors can’t do), and only invest in the rising sectors like we do. (you’re welcome). The range of sector performance were Financials performing the best at 2.1% and Utilities came in last at -2.1%.  We’ll take our earnings and move on!  Clearly there is some momentum building in the financial sector in anticipation of a Fed interest rate hike (which would likely be good for banks). Again…we’ll be watching!

My final though for the month: Time is our most precious resource. Starting with that undeniable truth, my mission is to help you get better returns with less risk so you can reach your goals faster, and less time spent thinking about the markets.  Thanks for your continued support.

 

Eric Ludwig is a certified financial planner in Madison, WI primarily for a select group of successful professionals and business owners, who among other things aspire to a work-optional lifestyle.  Stockbridge has developed and refined a process to put all the pieces of that puzzle together and we call it the Stockbridge GPS process.  GPS stands for Goals, Planning, Strategy.

E+R=O The most important equation for investing

By

E+R=O

The most important equation for investing, and maybe even life is E + R = O.  Which stands for Event + Response = Outcome.  Meaning that the final Outcome of things that happen each day consists of some Event AND our Response to it.  We cannot control Events.  Events just happen.  We cannot cause the stock market to go up and down.  We can’t even predict whether it will go up or down.  What we can control is our Response to Events, and ultimately, it is our Response that will have the biggest impact on the end result.

For example, many years ago I had a client that was thinking about retiring soon.  When markets started to slide in 2007, I recommended that she sell some of her high-gain stocks and get into more of a balanced portfolio, but she decided to keep her portfolio the same.  In 2008, markets fell further, dropping some 40%, and she still hung-in there.  In early 2009, markets continued to drop!  Finally in early March of 2009, she said, “Eric, I can’t take it anymore.  Let’s sell everything and go to something safe.”  I’ve seen many people make this decision (response) after various market drops (events), but I will never forget this client, and this day.  It was March 9th, 2009, which was literally the absolute bottom of the market.  It hasn’t dropped a penny lower since that day.

Stocks are up about 200% from that date, but she is not.  Stocks dropping is the Event.  Her Response was to sell, literally at the worst possible time.  The final Outcome is that 8 years later she is still working, still not retired, and her account has never gotten anywhere near to its pre-crash value.  The Event (market dropping) was not the biggest factor in the final outcome (value still low), but rather it was her Response (selling low) to that Event that has had the larger, lasting impact.  She still blames the Event, when in reality it’s her Response to the event that has caused her so much grief.

 While we cannot control market Events, we can certainly control how we Respond to market movements.  What our research has found is that by analyzing market trends over the last 2 to 3 months, and owning more the markets that are going up and not owning the markets going down in that time-frame, and then repeating that process monthly, may be one of the best ways to Respond to Events.  That process generated gains during the 2008 crash.  It’s why our most conservative momentum model has made money last week while stocks dropped.  The problem with continuing to own markets that are in a down trend, is that nobody knows how far it will drop, how long it will take to bottom-out, or how long it will take to recover.  The Japanese stock market, for example, is still not above a high it set in 1989!  Sometimes, “just hang in there” is not the best advice.

We feel that most of the sell-off from last week is over concerns in China’s economy.  That is somewhat valid, as it is the 2nd largest economy in the world.  BUT, last time I checked, it is China’s economy that is bad, not ours, and we don’t have anyone invested in China.  I’m not going to sit here and tell you though, that the market will quickly reverse.  I have no way of predicting what will happen next, and neither does anybody else (not even the good looking people with expensive suits on CNBC).

Events are random.  They just happen.  Events are out of our control.  Responses are not the same as Events.  Responses can be void of emotion like fear, void of the desire to predict what will happen next, and void of having only a short-term perspective.

 Responses can consist of a rules-based strategy that has worked over decades of good and bad market cycles.  Responses can be backed by probabilities of likely outcomes.  And Responses can consider the long-term perspective.  And that’s what we do.  That’s why we’re here to help.  What I can tell you is that in one more week we will re-run our monthly analysis and continue the process of owning markets that have the highest probability for continuing up for the next month, and repeat, and repeat, and repeat.

Last week a client in my office asked, “What will happen next in the market?”  I moved my crystal ball on my desk in front of him and said, “Take a look, and you tell me.”  He said, “I don’t see anything” and I asked, “Are you sure?  Look again.”  He said, “All I see is my reflection.”

“Perfect” I said.  “That guy in the reflection, you, is ultimately what’s going to determine what really happens next.  We won’t know which way the market will move, but at least you have the wonderful ability to decide how you will respond.  And that’s the only thing that matters.”

 

Eric Ludwig is a certified financial planner in Madison, WI primarily for a select group of successful professionals and business owners, who among other things aspire to a work-optional lifestyle.  Stockbridge has developed and refined a process to put all the pieces of that puzzle together and we call it the Stockbridge GPS process.  GPS stands for Goals, Planning, Strategy.

Momentum Investing Worst Months

By

Momentum Investing: Worst Months and what Happened Next

Successful Investing: Stay Disciplined

I was re-reading an awesome investing classic “What Works on Wall Street” where he discusses the simplicity and effectiveness of the “Dogs of the Dow” strategy. The author goes on to explain that there were times of the strategy’s under-performance, yet for the disciplined investor who followed the strategy through the bad times, the investor was ultimately rewarded.

In the same light, I asked:

Q: What were the 6 worst months of the Global Asset Momentum Strategy back-test? (starting in 1990)

and more importantly

Q: What happened in the following 12 months?

Below is the table with the answers:

Month-Year Month % Next 12 Months Event
May-10 -7.80% 29.90% Flash Crash
Nov-07 -7.81% 7.40% Financial Crisis
Jan-09 -8.47% 61.80% Financial Crisis
Apr-04 -8.68% 14.20% Unidentifiable
Jun-08 -8.90% -25.20% Financial Crisis
Aug-90 -12.96% 2.50% Invaded Iraq
Average:  -9.10% 15.10%

The worst 6 months range from -7.8% to the worst of -13% (averaging -9%).  The return of the strategy over the next 12 months averaged 15.1%.  They were all positive “next-12-months” except for the June 2008 to July 2009 when the strategy was still climbing itself out of the Financial Crisis.

One interesting observation: 3 of the worst 6 months occurred within 14 months of each other: November 2007…June 2008…January 2009.  That’s not to say that we wouldn’t expect poor performance to clump together again in the future, but it appears that on average, the back-test shows it’s fruitful to “stay-the-course”, even when we see a loss of -8% in one month.  This is just a repeat of what successful investors already know: invest with discipline and be rewarded.

 

Eric Ludwig is a certified financial planner in Madison, WI primarily for a select group of successful professionals and business owners, who among other things aspire to a work-optional lifestyle.  Stockbridge has developed and refined a process to put all the pieces of that puzzle together and we call it the Stockbridge GPS process.  GPS stands for Goals, Planning, Strategy.

The information provided on this website is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision.  Past performance is not indicative of the future performance.

How To Beat Warren Buffett

By

How To Beat Warren Buffett

Beating Buffett

 

It’s dangerous territory to compare yourself to “the best” in anything.  But it sure makes a great benchmark.  Warren Buffett is arguably one of the best investors to walk the planet, amassing wealth to rank him one of the wealthiest people in the world.  So let’s start there.

Losers

First we’ll look at the downside of Buffett’s track record, the losses.  Since 1990 (25 years) 39% of the time he loses money in a month.  When his stock is down, how far done does it go?  The average down month is -4%, and the worst month was -14%.  Looking back, there’s been 2 times that he’s had to suffer through losses of 50% (2001, and 2008). (Could you image being down $40 billion?!)  So even the “best investor” has certainly had his down times.

Digging deeper we find that when there’s a losing month, 56 times it’s just a single down month-in-a-row, but he’s suffered through 5 consecutive losing months twice, and even had a really bad streak of 7 losing months-in-a-row at one point (in 2004).

Losing Month Comparison

How does our Global Asset Momentum strategy compare?  It’s experiences a losing month 32% of the time (vs 39%).  When it goes down, the average loss is -3% (vs -4%), and it’s worst month is -13% (vs -14%).  So our strategy has been slightly better in each category.  But there’s one very big improvement: the maximum loss has only been -22% which is significantly easier to handle than Buffett’s 50% losses twice.  I think it’s fair to say that our strategy has done a better job of experiencing less losses, and far less dramatic losses than Buffett.

Growth

But losses are just one side of the coin.  The bottom line is “who’s grown more?”  In the last 25 years, Buffett has outpaced the stock market, earning a compound annual return of 14%.  $100,000 invested with Buffet (re-investing dividends) grows to a healthy $2.6 million in 25 years.

The Stockbridge Momentum Strategy beats Buffett.

It’s averaged 20% per year since 1990, and the same $100,000 invested grows to an astonishing $10.4 million.  Now we can see the impact of earning just a few percentage points more per year, and doing just a little bit better job of minimizing risk.  It’s literally a 400% difference over 25 years.

 

Here’s the data tables:

%losing months avg loss worst month MDD
Stockbridge Momentum 32% -3% -13% -22%
Berkshire 39% -4% -14% -44%

 

%up months avg gain best month Growth
Stockbridge Momentum 68% 4% 21% 20%
Berkshire 59% 4% 30% 14%

 

Source: Yahoo Finance

Eric Ludwig is a certified financial planner in Madison, WI primarily for a select group of successful professionals and business owners, who among other things aspire to a work-optional lifestyle.  Stockbridge has developed and refined a process to put all the pieces of that puzzle together and we call it the Stockbridge GPS process.  GPS stands for Goals, Planning, Strategy.

The information provided on this website is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision.  Past performance is not indicative of the future performance.

Buy your Advisor 5 Lamborghini’s

By

Let’s say you’ve done well in life.  You did what you were supposed to do: you saved all your life, invested, and accumulated $1 million.  You’re ready to retire and looking to hire a Financial Advisor to help manage your investments and keep you on track with your financial plans throughout life.

Advisor Fee: 1%

You call around and find that the average Financial Advisor charges 1% per year (National Average, PriceMetrix.com).  Many people believe that is the only cost.  There are additional costs for the investments.

Mutual Fund: 1.25%

According to Morningstar, the average mutual fund charges 1.25% a year.  I have yet to see a firm show this charge being deducted on a statement, but make no mistake, if you own a mutual fund there is a fee being deducted by the fund manager (called the expense ratio).

Total Cost: 2.25%

So using the average cost of an Advisor and a Mutual Fund, you’re “all-in” at 2.25% per year.

How to Reduce Costs:

ETF Cost Reduction: 1%

Let’s say your Advisor uses low cost index funds, ETF’s (Exchange Traded Funds) instead of Mutual Funds.  The average cost of ETF’s that we use at Stockbridge charge a 0.11%, a full 1.14% less than the average Mutual Fund.  So what does this amount to in cost savings over 25 years, and a 7% return?

$1 MILLION!

Actually it’s $1,066,235 LESS in FEES.  $1 million grows to $3.2MM using the average fees (1% Advisor, 1.25% mutual fund), but grows to $4.3MM simply by reducing costs.

Control the Controllable

While we can’t control the market, we can control fees.  The effect of reducing costs could be $1 million for every $1 million you have invested.  OR, you could simply buy 5 Lamborghini’s and drop them off in your Financial Advisor’s parking lot for them.  It’s up to you.