Halbert Wealth Celebrates 20 Years, I Celebrate 40 Years by Gary D. Halbert

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert

July 21, 2015

IN THIS ISSUE:

  1. My 40-Year Career in Commodities & Investments
  2. My First Major Conclusion – “Buy-And-Hold” is Not the Answer
  3. Avoiding Big Losses – That’s What It’s Really All About
  4. Niemann Capital Management’s Risk Managed Program
  5. Wellesley Investment Advisors’ Convertible Bond Program

Overview

This year marks the 20th anniversary of Halbert Wealth Management. 2015 also marks my 40th year in the investment business. Since many of my readers don’t know my career history, I thought I would devote this mid-summer issue of Forecasts & Trends to telling my story going back to 1975 when I first got into the investment business.

I also want to revisit how and why I came to found Halbert Wealth Management and began searching for professional money managers in 1995, and have continued to do so ever since. If you’re an investor, I think you’ll find this story interesting.

I’ll finish out today’s E-Letter by highlighting two of my favorite money managers, each with 19 and 20-year performance records. These two should be strong candidates for almost any well-diversified portfolio.

My 40-Year Career in Commodities & Investments

In 1975, I received my Master’s Degree in international business at the American Graduate School of International Management (Thunderbird) in Phoenix. I began my career in the investment business that same year (at age 23) as a commodities trader for a major multi-national agricultural corporation, Continental Grain Company. I bought and sold agricultural commodities from Kansas City to South Texas and in several surrounding states.

In 1976, I transferred to the company’s futures brokerage unit known as ContiCommodity Services in the Dallas branch. It was there that I became a “hedging specialist.” Working with many of the same customers I dealt with at the grain company, I was able to teach them how they could use the futures markets to hedge their risks on the commodities they produced or consumed. I even wrote a detailed manual on hedging commodities in 1977. Shortly thereafter, I became one of the company’s largest producers in the country.

Avoiding Big Losses – That’s What It’s Really All About - Halbert Wealth

By 1984, I had founded my own commodities brokerage company, ProFutures, Inc. and enjoyed a lot of success helping regional agribusiness firms reduce their market risks by hedging. Joining me at ProFutures was Debi Benson, who I married two years later and is the mother of our two children. We still work together and will celebrate 30 years of marriage in March.

I was perfectly happy with my career at that point, and I had a rapidly growing client base during the 1980s and early 1990s. In 1987, we launched our first multi-advisor futures fund, and in 1991 we launched a second futures fund. Our assets under management were growing rapidly, and I had no thoughts about expanding my business beyond the commodities markets and hedging.

Yet in late 1994, I read a study which found that most individual investors in stocks and bonds substantially under-performed the markets year after year – and still do to this day. Surely, this was not happening to my hedging clients in their personal investments, I presumed. In any event, I decided to write about the DALBAR Studies in my newsletter – on the assumption that my sophisticated clients were not under-performing the markets year after year.

Almost jokingly, I asked how this could be happening to most investors, but surely not to my clients? Remember, this was in late 1994. The response to that newsletter was nothing less than stunning! Within days, we received dozens of phone calls and dozens of letters from my clients. Almost without question, my clients said that they were the essence of the DALBAR Studies – that they, too, consistently under-performed the stock and bond market indexes in their personal investments. I was shocked!

While I was perfectly content to continue servicing my clients’ hedging needs in the commodity futures markets, I was also compelled to see if I could be of help to them with their more traditional investments in stocks and bonds. The response was overwhelming! Please help me with my other investments! I never remotely expected such a response.

This changed my business in ways I had never imagined. I had to think long and hard about how I could help my clients achieve success with their investments beyond helping them manage their risks in the commodities markets. I took what I had learned in my 18 years in the commodities business and applied that to helping them with their stock and bond investments.

So in early 1995, I founded ProFutures Capital Management, Inc. (later renamed Halbert Wealth Management, Inc. as it is known today) and became an Investment Advisor registered with the US Securities & Exchange Commission. My goal was to help my clients with all of their investments, to the extent possible.

My First Major Conclusion – “Buy-And-Hold” is Not the Answer

As I pondered in late 1994 and early 1995 how I could best help my clients achieve the investment results they deserved, I considered all of the prevailing theories on how to achieve long-term success in investing. I quickly realized the prevailing wisdom was that there is no way to “time” the markets, so the best approach was to buy-and-hold, ride out the gut-wrenching downturns and hope the markets go up over time.

Being a contrarian by nature, I questioned that assumption. I looked at studies which showed that many investors could not emotionally hold on during the sometimes violent downturns in the market, and all too frequently bailed out of the market at the very worst times. Conclusion: I had to figure a way around this all-too-often disastrous outcome.

Next, I questioned the widely-held assumption that “market-timing” does not work. Market-timing theory suggests that there are times to move out of the market periodically and into cash (money market) during serious downward corrections and bear markets. Yet the reality was/is that most so-called market timers and actively-managed strategies are not successful long-term.

But my years of commodity trading told me that just because most market timers had not been successful, that didn’t mean there were not others who have been successful over time. The question was, how do you find the good ones? While not easy, it wasn’t rocket-science to separate the losers and mediocres from the long-term winners. I knew how to do this.

The question I had to consider was this: Even if I could find the successful market timers and actively-managed strategies, could I convince my clients to embrace this investment approach – since they had been so successfully brainwashed by the Wall Street Establishment that the “buy-and-hold” forever approach was the only way to go? Without knowing the answer, I decided to go ahead anyway.

As we embarked on this journey in 1995, the results were as expected: Most of the market timers and active managers we looked at were not successful. FYI, most of the market timers we look at today are also not successful. So, why continue to look at them? Because we occasionally find the truly successful ones! That’s why we have continually spent a lot of time and money searching for the successful ones since 1995 and still do.

Avoiding Big Losses – That’s What It’s Really All About

Let’s face it. Buy-and-hold strategies make you accept that you must endure the occasional severe bear markets and hope that you don’t panic and bail out at the worst time – as so many investors do, unfortunately.

Successful market timing strategies argue, to the contrary, why not try to avoid the occasional bear markets by moving to the sidelines, or into defensive positions from time to time, as market conditions dictate? This has always made sense to me. As I have pointed out for the last 20 years, it is more important to avoid the big losses than it is to match or beat the market averages every year. Why? Let’s take a look.

Halbert Wealth

As you can see, the larger the loss, the harder it is to recover. You have to make 25% to recover a 20% loss; a 50% loss requires making 100% to breakeven. That’s why avoiding large losses is so important.

I think most clients and readers would agree that stocks are riskier today than they have been in many years. Financial risks have risen; currency risks have risen; geopolitical risks have risen with Greece on the verge of default once again, and Japan remains a bug in search of a windshield. China’s stock markets tanked recently. Russia is in crisis due to the implosion of oil prices. And then there’s the Fed which seriously wants to raise interest rates this year.

While I don’t often market our services at Halbert Wealth Management in this E-Letter, I am going to make an exception today. With the risks in the markets so high, I feel an obligation to plead my case that you consider the professionally-managed strategies that I have recommended for years – that can move you out of the market from time to time, or hedge long positions.

We have been searching the universe of professional stock and bond money managers for the last 20 years. If I do say so myself, we are very good at separating the really good ones from the mediocre and the losers. So I will start with a professional money manager that has been successfully navigating the equity markets for almost 20 years.

Niemann Capital Management’s Risk Managed Program

Niemann’s Risk Managed Program commenced actual investing in 1996. Risk Managed’s objective is to exploit intermediate stock market trends while also seeking to limit risk. This strategy invests only in domestic equity ETF’s. This program typically holds 10 to 15 positions representing a broad universe of ETFs that Niemann’s proprietary strategy has determined to have the highest potential for gain.

In down markets, Risk Managed can move to cash (money market), awaiting another uptrend. Risk Managed can be fully invested, partially in cash, completely in cash, or even partially short as a hedge against existing long positions. It will not go net short. There is no bond or international exposure.

Halbert Wealth

Halbert Wealth

As you can see above, the Risk Managed Program, net of all fees and expenses, has outperformed, the S&P 500 Index since 1996, and it’s done it with a lot less risk. Tell that to the Wall Street types who claim it is impossible to time the market! Risk Managed has an annualized return of 10.8% since its inception in 1996, easily beating the S&P 500 as shown above.

What I like most about the Risk Managed Program is that it’s on the long side of the stock market most of the time, but it can move partially or fully to cash (money market) during downward corrections or bear markets. Best of all, this strategy has performed very well this year, even though the S&P 500 has moved mostly sideways so far in 2015.

While we always have to caution that past performance is no guarantee of future results, the Risk Managed Program has been a success for almost 20 years. Maybe it’s time you took a serious look at this successful program. Accounts are held at Fidelity Investments. The minimum investment is only $50,000. CLICK HERE for more information and important disclosures.

Wellesley Investment Advisors’ Convertible Bond Program

Most people don’t invest in convertible bonds because they don’t understand how they work. That’s too bad because there’s real opportunity in this market. Let me state at the beginning that Wellesley’s Convertible Bond Program is NOT a market timing program. Wellesley’s convertible bond investment strategy is a multi-step process based on detailed fundamental analysis of the issuers of these bonds.

First, they typically look for convertible bond issues from entities that are financially strong, have attractive “put” and “call” provisions and an appropriate equity premium. Second, Wellesley seeks companies with expanding sales and profits, good management, and positive overall prospects.

Third, the overall economic outlook is considered, including interest rate projections, prospects for the given industry, etc. The goal is to select convertible bonds with the potential to produce attractive absolute returns over full market cycles (5 to 7 year periods) with minimal losses.

Halbert Wealth

Halbert Wealth

Given the growing risks in the bond market, and especially the risk of rising interest rates just ahead, investors may be wise to consider a professionally managed convertible bond strategy such as Wellesley’s Convertible Bond Program. This strategy has an impressive 20-year track record in a market that is not highly correlated with stocks or bonds.

Again, we have to caution that past performance is no guarantee of future results. Yet Wellesley’s Convertible Bond Program has been a success for 20 years. Maybe it’s time you took a serious look at this successful program. Managed accounts are held at TD Ameritrade. The strategy is also available in a mutual fund. CLICK HERE for more information and important disclosures.

Conclusions

Niemann’s Risk Managed Program and Wellesley’s Convertible Bond Program are just two of the successful investment opportunities we offer at Halbert Wealth Management. But they are two that I would highly recommend to most sophisticated investors.

If you haven’t invested with us because you do not live in our area, let me assure you that is no problem. We have hundreds of clients all across America, and we haven’t met most of them in person. In this digital age, you don’t want to limit your options to just what the local broker or Investment Advisor has to offer.

Finally, in case you are wondering, I have my own money invested in the two programs discussed above, as well as with all of the professional Advisors we recommend.

If you would like more information on either of the programs discussed above (or others we offer), you can contact us as follows:

  • Call us at 800-348-3601 and ask to speak to Phil Denney or Spencer Wright
  • Send us an e-mail to [email protected]
  • Visit our website at www.halbertwealth.com and click on Strategies, then AdvisorLink.

In closing I would like to extend my sincere thanks to all of my clients, past and present. It is you who have made it possible for Halbert Wealth Management to celebrate 20 years in business, and for me to stay in this industry for 40 years now. Thank you, thank you!

Be sure to read IMPORTANT NOTES below.

Wishing you profits,

Gary D. Halbert