“Good investors gather information, put that information into current and historical context, then make sound decisions.”
There is an age-old controversy over the best way to keep that ‘mechanical something’ running the longest and the most efficiently. The discussion is aided and abetted by a colorful variety of maxims that defend the various points of view. They range from, “If it ain’t broke, don’t fix it,” to “You can pay me now, or pay me later.” It just so happens that my Dad was a fan of both of these sayings. The determining factor is that he was also a strong believer in the importance of regular maintenance. His work experience had a lot to do with it. Dad was a bomber pilot in WWII, and one of the sayings from those days was that it was a lot easier to service an airplane on the ground than fix it in the air.
Automobile maintenance is pretty straight-forward. You have the simple, regular checks like keeping the windshield clean, gas in the tank, and air in the tires. You have the fix-it-now stuff like replacing the dead battery or fixing the flat. You have the systematic mechanical operations like fluid and filter changes. And finally, occasionally, you get to replace important parts like brakes and belts and tires. This is just the normal stuff. These days warranties protect you if the big stuff breaks early on. When it happens later you get to decide whether its better to repair or trade as-is. Even then, maintenance is cheaper than car payments.
Portfolio maintenance operates in a similar fashion. You have the simple, regular checks like reviewing statements for your correct name and address, then of course checking the ‘bottom line’ for your account value. Corrections are easy, and questions about account values are always welcome, because they demonstrate that you are ‘kicking the tires.’ We like that! Trade confirmations indicate that fix-it activities are taking place. Those activities may involve a repair, or just regular operational maintenance. Once again, questions are very welcome! Occasionally, shifts in financial markets dictate that we make changes in your asset allocations. Or, a shift in your investment objectives may dictate some changes. Our primary objective is to make incremental adjustments as indicated, and keep the portfolio functioning efficiently.
As with automobiles, some investors may have the knowledge and the tools to do the job themselves. But most investors don’t, won’t, or shouldn’t. Modern portfolio management techniques are not unlike the modern-day automobile engines. To understand what is happening, or should be happening and isn’t, you need to hook up to a computer and evaluate the signals, before you reach for a wrench and start pulling parts. There is nothing worse than discovering after the fact that a simple adjustment would have eliminated an expensive replacement.
The biggest situations and the broadest changes are with new or existing clients who bring us portfolios that are ‘broke.’ This can result from a number of circumstances. Most common are portfolios such as retirement plans that were set up many years ago for growth. Now the client is retiring and needs additional income. Or an inherited portfolio may be primarily invested in cash, or invested in a few stocks or bonds. In these cases we start by listening to our clients, then carefully building or rebuilding portfolios that are in line with their current needs and future objectives.
Registered investment advisers are the mechanics that keep your portfolio running efficiently. We do much more than wait for something to go wrong. We monitor portfolio progress moving part by moving part. We communicate clearly about adjustments that may be indicated. We recognize the value of regular, reasonable maintenance checks. We do not ‘sell’ you a new portfolio then sit back and wait for it to break, so we can ‘sell’ you another. We value the relationship far more than we value the product.
Edward D. Foy, Manager, SELECTOR® Money Management.
Sources: Bloomberg.com, Marketwatch.com,