On Setting Up New Accounts by David Merkel, CFA of The Aleph Blog
Another great letter from a reader:
I enjoy your writing. I find myself of a similar mindset. I am an investment advisor running my clients individual accounts in a value fashion. I am currently have my clients invested in about 20 positions. My question is in regards to a new account… I have held off on buying the same positions in that new account unless any of the 20 positions still fall within my estimated “buy” range. Therefore, a new account opened today may sit in cash for some time until new ideas are found, or the 20 positions from the other accounts fall back to a buy range. How do you handle this? Do you use a model portfolio and all accounts consistently look alike?
Thank you and keep up the good work,
My value proposition is that clients get a clone of my accounts. I am my own biggest client; what I get, they get, less fees. I set them up to mirror my account within a week of receiving the assets.
The main reason I do it this way is that there is little rhyme and reason to target prices. I don’t have any target prices. Rather, I compare stocks against each other using a scoring system quarterly, and I sell companies that are relatively expensive and buy companies that are relatively cheap. Read my article Portfolio Rule Eight to understand this better. I realize few managers manage money this way, but I think it is a way that reflects how the markets really work. We should not compare individual stocks against cash, but compare stocks against each other. We should compare the stock market as a whole against cash, to analyze whether it is absolutely rich or cheap.