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Oct 20, 2008 5:41 pm

Getthere - your inexperience and lack of maturity shows on your posts. I think you are trying to set a record for the most posts in a 30 day period if you are in fact the former walking9. Spend more time on trying to build your business as opposed to trying to make everyone think you have all the answers. The only way you will ever succeed in this business over the long haul is to learn from your mistakes and the mistakes of others.   

Oct 20, 2008 5:55 pm

ICE,

It is more of an experience and training issue than anything else. Even you have to admit you have a better understanding of many things in this industry than you did in year one. As you gain more time in the business your knowledge will increase. Not all reps are cut out to run their own money or have the desire to do so. That is why we have mutual funds and seperate accounts that do it for them. It wasn’t a knock on you, just my opinion that reps should be a little more seasoned, have more portfolio management training and pass the CFA  before they start running money. Look at it this way, you wouldn’t want your family doctor performing surgery on you.  

Oct 20, 2008 6:13 pm

Thanks for bringing me to my senses, Mr. Bond.

Oct 21, 2008 7:38 pm

[quote=BondGuy]

  Right now most advisors are scratching their heads trying to figure out why their asset allocated portfolios are down 20-30-40%? They didn't know that this could happen. and yet they are charged with leading the multi year climb that will get their clients whole. Soon clients will be asking how properly allocated portfolios measured against  conservative risk parameters could perform so poorly as to lose years worth of hard earned gains. I don't want to be in the room for that conversation.  [/quote]

BondGuy, you hit it on the head.  I feel like Neo just waking up and being disconnected from the Matrix.  Why have these asset allocation models gone down as fast and as much as they did over the past few weeks?  And our research dept. still want us to believe in it.  Yeah, it was hard explaining this to clients who expected much more from a wrap account.  Yes, it's just a "arrow in the quiver" as I see some clients now want hands on management of their money and putting them back into brokerage accounts where they have the only discretion.  They also don't want to pay an advisor fees for money sitting in cash.  Sure, these are clients who were meant to be in brokerage in the first place but probably got sold by the wrap account idea.  Brokerage still has its place, and we still have clients who still feel secure in their wrap accounts, and we have people happy with their VA's.  It's still really up to us to determine their risk tolerance, time horizon, investment knowledge/experience, assets, etc. and then recommend the platforms that are best for them.
Oct 21, 2008 9:43 pm

And our research dept. still want us to believe in it. 

  Keep listening. It has been a while since we've seen correlation like this between stocks and bonds, but it happens. Sometimes it's better to nothing, you certainly wouldn't want to double down or do something stupid like start gambling with options.   Guys who trade individual bonds (maybe less experienced than BG) may have gotten really burned, now they have another layer of risk - individual security risk - to figure out (hold or sell) - whereas most "average advisors" - the ones who were so roundly criticized here for holding funds and index vehicles - can afford to sit back and wait.   This is a really, really hard time, and unusual. My guess is that within a couple of quarters, we'll start worrying again about whether our allocations are too conservative. About the time some Chinese investors come in and buy (most of) Wal-Mart.
Oct 21, 2008 9:45 pm

And our research dept. still want us to believe in it. 

(Edit - quote.)
Oct 22, 2008 8:23 pm

My beef really here is asset allocation.  I think it’s hard to believe in it when it’s not what it’s touted to be.  It’s suppose to capture the entire market so that you can get returns from whatever asset class is performing the best in a given year.  That’s why they tell us to be quiet and stay the course as long as you’re well allocated and diversified.  But, when all the fundamentals are thrown out the window like what we’re facing now, all of these asset classes are down.  Bonds that are suppose to give us returns when stocks are down aren’t doing that anymore - in general.  Then, the powers that be tell us that there’s an alternative investment class that can now be added.  So, that means that we really haven’t captured the entire market in the first place. What are they going to tell us next, put bear market funds in your
allocation?  Why not put the kitchen sink in there too while we’re at
it.

I think that it all boils down to risk and return.  I think that investors and advisors should still remember the basics.  For some amount of return, you’ll need to face some risks.  This is what the market is teaching us right now.  We can’t sell asset allocation anymore as a universal solution to people’s retirement needs without educating them of the risks.  It can sink no matter how unsinkable it is with all those compartments in there if an iceberg hits it the wrong way.

Oct 22, 2008 8:37 pm
gregoron:

My beef really here is asset allocation.  I think it’s hard to believe in it when it’s not what it’s touted to be.  It’s suppose to capture the entire market so that you can get returns from whatever asset class is performing the best in a given year.  That’s why they tell us to be quiet and stay the course as long as you’re well allocated and diversified.  But, when all the fundamentals are thrown out the window like what we’re facing now, all of these asset classes are down.  Bonds that are suppose to give us returns when stocks are down aren’t doing that anymore - in general.  Then, the powers that be tell us that there’s an alternative investment class that can now be added.  So, that means that we really haven’t captured the entire market in the first place. What are they going to tell us next, put bear market funds in your allocation?  Why not put the kitchen sink in there too while we’re at it.

I think that it all boils down to risk and return.  I think that investors and advisors should still remember the basics.  For some amount of return, you’ll need to face some risks.  This is what the market is teaching us right now.  We can’t sell asset allocation anymore as a universal solution to people’s retirement needs without educating them of the risks.  It can sink no matter how unsinkable it is with all those compartments in there if an iceberg hits it the wrong way.

  Here's the problem.  Asset allocation worked in the dot com crash.  If you were diversified, tech did not kill your portfolio.  This time, nothing is safe, not even money markets a few weeks ago.   Here's some info from PIMCO:   How this September Ranked compared to every month since 1988 (240 total months):   Lehman Agg Bond index: 13th worst month ML 1-3 yr Gov./Credit index:  Worst month Lehman US TIPS index:  3rd worst month Credit Suisse Leveraged loans index:  Worst month JP Morgan Emerging Market Bond index:  5th worst month Russell 2000 Equity TR index:  11th worst month Lehman US High Yield index:  Worst month S&P 500 index:  5th worst month Lehman Long Credit index:  Worst month DJAIG Commodities index:  2nd Worst month MSCI EAFE index:  Worst month ML Convertible Bond index:  Worst month MSCI Emerging equity index:  2nd worst month     You tell me where you want to be.  Truth is, asset allocation isn't working this time.  You need to have a back up plan.  Maybe an annuity, options, CD's, Treasuries, cash, whatever else is out there, some alternative stuff has done OK.  Many good people out there thought they were doing the right thing, but it hasn't held up. 
Oct 22, 2008 8:46 pm
You tell me where you want to be.  Truth is, asset allocation isn't working this time.  You need to have a back up plan.  Maybe an annuity, options, CD's, Treasuries, cash, whatever else is out there, some alternative stuff has done OK.  Many good people out there thought they were doing the right thing, but it hasn't held up.    Are you kidding, you're going to switch horses now? This conversation is costing me golf time.
Oct 22, 2008 8:50 pm

I looked 2x’s at your list Snags…I don’t see anything about A shares at full load…how have they held up?

Oct 22, 2008 8:57 pm

[quote=Getthere]

You tell me where you want to be.  Truth is, asset allocation isn't working this time.  You need to have a back up plan.  Maybe an annuity, options, CD's, Treasuries, cash, whatever else is out there, some alternative stuff has done OK.  Many good people out there thought they were doing the right thing, but it hasn't held up.    Are you kidding, you're going to switch horses now? This conversation is costing me golf time. [/quote]   I'm not switching horses at all.  I would if I could go back to 2007.  I am looking to have more conversations about correlation and how clients' perceived definition isn't truly diversified.   What would I be kidding you about? 
Oct 22, 2008 8:57 pm

Is it possible that it’s a lack of experience with bear markets?  
For all practical purposes the market has gone straight up since it
bottomed in 1982.



There are fund managers with twenty plus years of tenure who have never
had to deal with a down market for more than a few days.  First it
takes a willingness to accept that the market may not go up for decades.



Once the manager has come to grips with that they can engage in
strategies that will generate income during flat to slightly down
markets–using the options market.  I’m a major fan of selling
calls and cash secured puts against existing long holdings.  The
problem with only selling calls is some day the market will go up again
and the shares will be called away or the calls covered at large losses.



That’s what happened in the early '80s–a strategy that had been
accepted as the equivalent of printing money suddenly fell out of favor
when a stock that was trading at, say, 80 was being called away at 50.



Clients decided it was a stupid strategy and stopped doing
it.   Thats a shame, option writing portfolios perform very
well–perhaps not as well as those with several of the year’s biggest
gainers, but very well nonetheless.



Another fear is that in times like this investors begin to speculate,
in a frenzy of trying to generate a return.  Suddenly a
conservative client will start talking about doing a Bean Oil Crush or
a Gold Silver spread out of frustration developed by watching another
year go by and their portfolio going no where.



Finally I really do believe that law suits are going to come out of the
woodwork, prompted by attorneys who will entice clients with ads that
say something like, "If you’ve been paying for financial advice you may
have been a victim of fraud.  Call 1-800-CON-GAME for a free
consultation."



Damn, as I type this there is an ad on CNBC asking, “Have you lost
money in the recent market decline?  Call the law offices of C
Douglas Kirk (I think).”  Those kind of ads are going to become
commonplace and really honorable people are going to see them and come
to the conclusion that it’s their best chance at retiring.



There really isn’t anywhere to hide.  Surer than hell if you go to
cash the Dow will go up 3,000 points in a straight line.  If you
don’t it will go to 5,000.  Or, from my point of view, the Chinese
water torture of going sideways for a decade like it did from the late
’60s to the early '80s.

Oct 22, 2008 8:59 pm
bspears:

I looked 2x’s at your list Snags…I don’t see anything about A shares at full load…how have they held up?

  I don't know...everything on the list is an index...use your imagination.
Oct 22, 2008 8:59 pm

Now we realize that our investment boat is named Titanic? Doomed before it left the dock by the unthinkable, if not the unknowable. And like the Titanic, for many, not a lifeboat in sight.

  Maybe. I'm not ready to throw asset allocation under the bus even if in using it we got thrown under the bus. It has merit, just a lot more risk than many believed. We all know that you shouldn't keep all your eggs in one basket. So, what do you do if all the baskets get dropped and stepped on?  For those who didn't realize this could happen, well, now you know.    15, 20,25 years ago when the Bob Hope generation was still actively investing I would constantly get "I lived through the great depression, don't lose my money!" I would tell them that I wouldn't lose their money. And I didn't lose their money. My thoughts though, was that another great depression was impossible. Well, as of a month ago, I no longer think that way. I believe we have avoided armageddon but the nuclear option is still on the table entitled "Realm of possibility." We are living through some ugly history that will rewrite the books. History we need to heed.
Oct 22, 2008 8:59 pm

Snaggle, get a hold of yourself. Google SRLAX. This equity fund from 2005 did: 6.47, 3.66, 18.25, and is down 34% YTD. I would expect it could go down 40%, based on the historical norms. Ten year average is around 2%. Yeah, equity sucks in a low inflation environment.

  Demand for most fixed equity is in a free fall, but it delivers interest in a flat equity market. This is a liquidity crisis coupled with a recession.   Don't overthink this, guys. Even Bond Guy got fooled by a psycopath. Go play some golf, I'm outthere for today.
Oct 22, 2008 9:08 pm

[quote=Getthere]Snaggle, get a hold of yourself. Google SRLAX. This equity fund from 2005 did: 6.47, 3.66, 18.25, and is down 34% YTD. I would expect it could go down 40%, based on the historical norms. Ten year average is around 2%. Yeah, equity sucks in a low inflation environment.

  Demand for most fixed equity is in a free fall, but it delivers interest in a flat equity market. This is a liquidity crisis coupled with a recession.   Don't overthink this, guys. Even Bond Guy got fooled by a psycopath. Go play some golf, I'm outthere for today. [/quote]   Wait a sec...I'm on your side and agree with you.  I'm fine, except I won't touch asset allocation funds anymore. 
Oct 22, 2008 9:13 pm

[quote=iceco1d]

If your asset allocation doesn't have any pieces that are positive right now, and a few pieces that are even or near even money, then you did it wrong in the first place.  Don't blame "them" for it not working - I'm so sick of hearing comments like this.  The problem is with the people doing the implementation. [/quote]   I agree completely.  The problem is, I was one of those people.  But the first step to recovery is to admit I have a problem. 
Oct 23, 2008 12:19 am

[quote=snaggletooth][quote=iceco1d]

If your asset allocation doesn't have any pieces that are positive right now, and a few pieces that are even or near even money, then you did it wrong in the first place.  Don't blame "them" for it not working - I'm so sick of hearing comments like this.  The problem is with the people doing the implementation. [/quote]   I agree completely.  The problem is, I was one of those people.  But the first step to recovery is to admit I have a problem.  [/quote]

Hi, my name is gregoron and I too have a problem.  Not so much on implementation, but I think I should have placed an extra level of precaution when analyzing some clients' risk and investment objectives, and not just relied on asset allocation.

The thing here is that investors should be asked when their risk tolerances are analyzed how much of a percentage of their investments are they willing to lose for the potential gains they could get.  For example, "Mr. Investor, how much of this $100k could you lose before you say, 'put me in cash'"?  If he says 15%, then when his investment goes down to $85k, you put him in cash.  With asset allocation, we give them an investor questionnaire asking them if they're growth, growth with income, principal protection, etc.  If they're G&I, we give them 60% equities, 35% bonds, 5% cash.  Done, fire and forget.  Market is doing well, they're fine.  Market is tanking, let's rebalance, buy some quality funds and they're still supposed to be ok.  They're now down 30% and now they start asking where their money went despite the fact that they are in a well diversified good quality funds.  Weren't they supposed to capture some bond returns, or minimize their losses, from the 35% exposure they have to fixed income?

If I had asked them how much they could stand to lose then it wouldn't be such a problem for Mr. Investor now.  The thing here is that asset allocation is not a fire and forget tool for investments.  Even if you do everything by the book, sometimes street smart could still save your bacon.

PS.  My well-allocated portfolios are still way above their respective benchmarks.
Oct 23, 2008 12:36 am

[quote=gregoron]
Hi, my name is gregoron and I too have a problem.  Not so much on implementation, but I think I should have placed an extra level of precaution when analyzing some clients’ risk and investment objectives, and not just relied on asset allocation.

[/quote]   I feel the same way.  
[quote=gregoron]
The thing here is that investors should be asked when their risk tolerances are analyzed how much of a percentage of their investments are they willing to lose for the potential gains they could get.  For example, "Mr. Investor, how much of this $100k could you lose before you say, 'put me in cash'"?  If he says 15%, then when his investment goes down to $85k, you put him in cash.  With asset allocation, we give them an investor questionnaire asking them if they're growth, growth with income, principal protection, etc.  If they're G&I, we give them 60% equities, 35% bonds, 5% cash.  Done, fire and forget.  Market is doing well, they're fine.  Market is tanking, let's rebalance, buy some quality funds and they're still supposed to be ok.  They're now down 30% and now they start asking where their money went despite the fact that they are in a well diversified good quality funds.  Weren't they supposed to capture some bond returns, or minimize their losses, from the 35% exposure they have to fixed income?

If I had asked them how much they could stand to lose then it wouldn't be such a problem for Mr. Investor now.  The thing here is that asset allocation is not a fire and forget tool for investments.  Even if you do everything by the book, sometimes street smart will save your bacon.
[/quote]   That question is asked specifically in words and by pictures to clients in my risk profile questionnaire.   The problem is, for the category that is say +20%, -15% range or whatever it is, it might put them into a 70/30 split or whatever.  Based on that historical range, these clients are easily down 30-35+% after today.    Regarding your idea to say, "What is your threshold before you go to cash?", what if the market is down 15% and you pull out, how do you decide to get back in?    I think there are some great long term trends that can be followed which provide long term signals.  Thanks Primo.
Oct 23, 2008 12:39 am

[quote=iceco1d]

!!!!!!!!!!!!!!!!!!!!  Agree?  Completely?  Would you also agree that the Bengals are head for a miraculous 9-0 finish to the season, grab the last wild card spot @ 9-7, march thru the playoffs and win the Superbowl? 

[/quote]   Yes, agree completely with your prior post.  The Bengals, however, are trash and should be sent to the CFL.  Take the Seahawks with them.   Ocho Cinco was the worst pick ever, behind Brady, Romo, Maroney, and the rest of my crappy teams.