We just had a client leave us after 18 years. They handed over their children’s accounts 11 years ago and wanted an aggressive strategy. For my firm, LCM Capital Management, that meant 80%/90% stocks and 20%/10% fixed income. We do not buy mutual funds for our clients so it’s all individual stocks and bonds/CD’s and a few index ETF’s. We are not traders and if you have read any of our previous blogs you know, we are buy and hold with a passive tilt, meaning, very little turnover/trading.
After 11 years the children’s accounts grew from approx. $300,000 to just over $800,000 (net of fees) and the parent’s response was to say thanks for what you’ve done for us, but we are going in another direction.
This anecdote exemplifies the investment environment we are in today in which historically exceptional growth in asset value is considered by some, maybe even many, not enough. In our view, there are too many brokers/advisors in this industry who sell based strictly on performance results and who will say to prospective clients, “we see what your current manager has done, but for our clients we earned them XXX% last year because we were so heavily weighted in the high-flying XYZ security. One thing that 38 years in this business for myself and my partner has taught us is when you get to the point that people have historically unrealistic expectations about what their investment return should be, they tend to be setting themselves up for trouble, e.g. a lack of diversification and the taking on of too much risk. We believe that, under these conditions, something is going to happen and it very likely won’t be good.
No, we are not talking about AI killing people or the world ending but I am talking about the proverbial you-know-what hitting the fan and what hits it and when, is anyone’s guess. We at LCM Capital Management don’t guess with our clients’ money and nor should you with yours. This is why diversification will always matter to us, as will your asset allocation towards stocks, bonds, cash and possibly real estate. And no, I don’t mean the latest private asset fad my industry tries selling investors. What I’m referring to is a place where you live, relax, and enjoy your family. For most, it’s your home and or second home - for some, a third. That’s the kind of real estate I am talking about.
When crazy expectations become the norm and rates of return become laughably high, we believe that’s when it’s time to take a step back and make sure you not only know what you own but know what you pay and what you are getting in return for that.
There is Better Way