facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Can your broker articulate your investment strategy?  Thumbnail

Can your broker articulate your investment strategy?




What about your advisor – do their explanations make sense and resonate with your investment goals, risk tolerance, and time horizon?

Does what you’re hearing pass the ‘common sense’ test?

Several times a year our new clients will remark something to the effect of ‘nobody ever teaches you this’ or ‘I hadn’t heard it broken down so plainly before.’  At the root of that comment they are alluding to something quite significant and unsettling.   Unfortunately, they are pointing to the asymmetry of information about investment and portfolio strategy, confusing vocabulary, and investment clutter which has made getting clarity about what you own and why it is out of reach for many investors.  

There are various investment strategies fund managers might use when looking at a potential opportunity.  Fundamental analysis is based in a deep dive into the financials of the company, reviewing revenue, debt, net income, and other measures of profitability and growth.  A review of management and the board of directors is also common.  Finally, this study is paired with reviewing the most recent earnings calls from the company and their annual report.  

Technical analysis will look at metrics like share price over various time periods (50 days, 200 days, year-to-date), the average volume of shares traded on any given day, and how the share price compares to peers within the same sector.  Sometimes this analysis will also include a review of the dominant holders of a security like a pension fund, a big institution, or an activist investor.

Factor strategies exist somewhere in the middle of fundamental and technical analysis.  A manager will attempt to pick combined multiple themes (factors) to create a basket of securities that all have a dividend payout of a certain percentage, or have traded below their 200-day moving average, or focus on environmental, social and governance (ESG) leadership for example.  

In addition to these strategies, as our collective computing power has only grown in the last few decades, a certain number of managers have capitulated on research all together in favor of algorithmic trading and shifted their reliance from pen and paper to robo-advisor platforms with computers dictating portfolio allocations.

At the end of the day, our experience has taught us that most investors want a clear, simplistic, straightforward portfolio strategy.   It is our belief at Hall Private Wealth Advisors, that those strategies are first born out of a fundamental understanding of a company.  For example, one simple question we ask ourselves is ‘does this company make money?’ (The ‘E’ in P/E ratio). That is usually followed by ‘how much debt is there’ or ‘what are the margins like, or ‘are the shares trading at an attractive price point?’  None of these questions are anything ground-breaking, but what is earth shattering to us, is how many portfolios we see where these questions obviously have not been asked.  

It is more common than you would expect that when a new client joins the firm (especially coming from a big bank), one of our first priorities is de-cluttering their portfolio from positions that clearly don’t fit these basic metrics.  That tells us that a surprising number of investors aren’t asking these questions or aren’t getting clear answers.  

Examples of decluttering a portfolio looks like selling off tiny positions (like less than 2.5% of an account), harvesting losses from positions that don’t have any clear upside potential, or selling duplicative positions where one company may be owned in multiple places.  Once a portfolio is distilled down to its most essential parts typically two things happen – investors know what they own, and returns improve.

But back to the original point about a clear investment strategy.  Ultimately, one of our biggest challenges as wealth managers is to build portfolios of high-quality investments where we also have a high conviction that our internal review process has built well diversified portfolios to capture performance gains and insulate our clients from market downturns.  To borrow a popular phrase, it is our challenge to separate the signal from the noise, proof we have done our job shows up in client portfolio returns where they know what they own, are comfortable with it, and the reasons why.

If you would like to speak with us about a common sense and research driven approach to portfolio construction, and a no obligation review of your current arrangements, we would welcome the opportunity get acquainted.