Barry Glassman, CFP

Barry Glassman, CFP®

His vision for starting GWS was to deliver investment strategies and wealth management services typically available at the highest levels of wealth. Today, clients benefit from these sophisticated financial services targeted to meet their unique needs.

Conventional wisdom says that if you want to get the most out of your investment portfolio, it’s best to leave it alone on a daily basis. Why? If you follow the ups and downs every day, you’re just reacting to the noise.

While it is generally good advice for most investors, as financial advisors, we take a different approach. In fact, every day brings us new information that we use to test our assumptions and “stress test,” if you will, the holdings we currently have in our portfolios.

The information we need is usually available by 7:00pm each business day, and by 8:30am the next morning our research director has prepared an executive summary of the day along with a comprehensive list that includes the performance of our clients’ holdings.

So what are we looking for from this information each day? We don’t rely on past performance because the world is ever-changing, and therefore, so are investment conditions. That’s why we prefer using real- time data on a daily basis to see if our assumptions are holding up.

Each strategy in the portfolio is analyzed based on what happened in various markets such as US and Foreign stocks, interest rates, currency, commodity prices and even the goings on in Congress. In essence we look for the following:

1.  Volatility: In each part of the portfolio allocation, we make certain assumptions about the expected volatility for each holding compared to its peers or index. We love doing this during periods of rising interest rates. Even a week of rising ten-year Treasuries provides information about how well our bond portfolio will perform once (if ever) interest rates jump. Think of this as a test to see how our roof held up during a tropical storm. If there are cracks, then a hurricane would be disastrous.

2.  Trends: Among the many trends we are seeing today is the relative out-performance of U.S. vs. Foreign stocks. Over time, we will see relative short-term and long-term out- performance of various regions. Here, we want to examine how much our client portfolios are participating in this trend. Last year, we moved a small allocation from emerging markets and invested in domestic stocks. By keeping, in essence, a daily report card, we can judge how this shift performed and whether it performed to our expectations.

3.  Correlation: 2008 helped disprove many theories of portfolio diversification. So many strategies moved in the same direction (down) that we must continue to question/challenge these correlation assumptions.

As an example, our clients with exposure to Michael Hasenstab’s Templeton Global Bond fund, which should perform independent of stocks, benefitted in 2008 as the fund gained more than 6% while the market tanked. Yet the fund provided little relief last summer as it lost more than 7% during the third quarter’s market downturn.

One thing we’re concerned about is how a global slowdown would affect this supposed diversification. While they own no Greek bonds at this time, Asia bonds could come under pressure if there is a global slowdown. During periods like this, we make it a priority to have more conversations with our managers to get a better idea of how our funds will hold up under various conditions.

4.  Outliers: If we see an outlier – an investment that is either out-performing or under-performing its benchmark, we start asking questions. If a fund underperforms because it has exposure to global mining companies, and we accept their rationale for this investment, we’ll likely keep them in our portfolios. But, if it was due to an over weighted bone-head stock pick that imploded, we want to know why. The answers we get on a daily basis help us to determine whether these investments will continue to make the cut.

What we’re not looking to do on a daily basis is to overreact to the constant barrage of negative headline news, or a triple-digit downturn in the Dow. By doing our daily homework, we want to ensure that our portfolios are diverse enough not just to withstand the minor tremors that occur on a daily basis, but more importantly, the big quakes that tend to hit us without warning.

We want to limit surprises, and if watching on a daily basis provides clues ahead of time, then our clients’ portfolios should benefit.



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