Trust, Winds of Change and Financial Advice

For any relationship to be successful, there must be trust.  This is obviously true for personal relationships, such as with a spouse, family members and close friends.

Trust and confidence in your financial advisor is also critical. 

For those who have worked with us for many years, we hope you have developed a strong level of trust in our advice and investment philosophy.

For those who are considering working with our firm, but have not yet made the decision to make a change to us as your financial advisor, trust may be a key factor in your decision. The other factor which you may need to overcome is dealing with a major change.

As I started writing this post, I saw a letter written by T. Boone Pickens, an 89 year old billionaire who decided to sell his huge 65,000 acre ranch in northeast Texas. In discussing his decision to sell this property, he said that “one of my keys to success has been the ability to accept and embrace change. That has been especially true in the fourth quarter of my life.”*

We view trust and change as elements which go together. As we reflect on the financial advice we have provided over the past 15 years, we are confident that our core investment philosophy and guiding principles led us to good decision making during a period of great change. Our clients have significantly benefited from our advice, consistent philosophy and discipline.

If the world, financial markets and technological change are happening so rapidly, how can you trust us to be able to handle these in the future?

We utilize an investment strategy which is quite adaptable to change, even if we can’t predict what the changes will be. By owning broadly diversified portfolios across countries, companies and industries, you will benefit from owning the companies which are successful in the long run. You will benefit from the long term economic progress which continues to occur both in the US and abroad.

Over time, we have reviewed portfolios of prospects who primarily owned stocks which we refer to as either legacy stocks (think of IBM and GE) or stocks which were purchased primarily for income and dividends, such as energy and gas stocks, telecommunication or other sectors.  These two categories, in general, have significantly underperformed major US and International stock benchmarks for many years.

These people have a choice. To paraphrase T. Boone Pickens, do you have the ability to accept and embrace the change which is necessary to switch advisory firms and modify your portfolio for a much better future? For those who were able to do this, they became clients. We worked with them, transitioned their portfolio and it has been very beneficial for them (and every one of our clients has done this at some point, when they first became clients!). They recognized that their former investments were not performing as well as possible and they recognized the rationale of our investment approach.

The winds of change: If you were using an investment advisor or mutual fund manager 5-10 years ago who was trying to pick stocks (let’s call them “active”), could that active manager or broker been able to accurately predict the seismic shifts which have affected vast parts of the economy? Would they have predicted the demise of numerous retail stocks over the past 10 years? Would they have predicted the drop in energy prices and vast underperformance of so many energy stocks? Would they have predicted which major financial institutions would outperform or underperform major benchmarks? Did they accurately recommend the correct technology stocks to own 10 year ago?

The winds of change are hard to predict, which is why we so strongly believe in the diversified investment philosophy we utilize. It is logical, disciplined and provides you with confidence.

Real energy change occurring: The following is another incredible example of change which is hard to predict, but which is occurring and affecting all sectors of our economy and lives.

A fascinating WSJ article on November 30th describes the transformation occurring in the energy sector. It describes how wind and natural gas usage are rising dramatically, causing record low electricity prices and the closure of older coal and other generating plants.**

The wholesale price of electricity in Texas last year was $25 per megawatt hour. A decade ago it was $55. In the Midwest, wholesale electricity prices are the lowest since 1999, which is as far back as the data goes. For a Midwest power grid, 8% of electricity was generated by natural gas in 2006. In 2016, that 8% grew to 27%. This is causing the closure of older coal and nuclear power plants.

For the Southwest Power Grid, which covers Louisiana to Montana, all the new power generation in 2016 was from wind, gas and solar. Wind is the fastest growing source of power even in Texas. Wind, which already generates 15% of the electricity in Texas, is expected to surpass coal as the 2nd largest source of electricity there by 2019.

What does this mean for you, as an investor? If major changes are rapidly occurring in the energy sector, how can someone accurately forecast which companies will either benefit or be hurt by these changes? If you own a portfolio of stocks, is your portfolio focused on companies which are reliant on the oil or gas business? Do you own stocks which are related to the production of wind turbines?

One of the major benefits of our investment strategy is that we do not have to be concerned with these issues. We are not trying to pick the winning stocks, hoping we will be right. We are focused on larger issues as part of structuring very diversified portfolios for our clients.

As we have often stated, we cannot predict the future. We do remain rationally optimistic and confident that in the long run, a globally diversified portfolio of stocks will be beneficial to you. We hope you share in our trust and confidence, and will benefit from our advice.


This week’s takaway: You must have trust and confidence in your investment advisor and their strategy. If you have the ability to accept and embrace change, you will be more successful. Major changes are occurring in the energy sector, especially the growth of wind generated electricity.



*T. Boone Pickens, LinkedIn post, November 29, 2017


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