Difficult Personal Finance Decisions

Difficult Personal Finance Decisions

We would all like our practical decisions to go easily, and bear quick positive results.  That’s not reality.  As for me, I needed to decide whether I would:

  • borrow against my home at 3% for 15 years.
  • liquidate a portion of my taxable brokerage account
  • liquidate shares in best private manufacturer of commercial lawn mowers in the world.

I decided on the flexible and probably low-cost solution, selling some of the taxable brokerage account.  I have two accounts, an IRA and the taxable account.  They were invested differently, but my investors get a blend of the two accounts.  I used to put the higher income names into the IRA, while the taxable account would take the lower income names.

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Private equity has been growing in popularity in recent years as more and more big-name funds and institutional investors dive in. Now even indexing giant Vanguard is out to take a piece of the PE pie. During a panel at the Morningstar Investment Conference this year, Fran Kinniry of Vanguard, John Rekenthaler of Morningstar and Read More


That has been changed. Both portfolios have the same proportion of names (companies). In the process, gains have been realized, but not so much as overwhelm the deferred losses of the past.

But for this exercise, one salient result was that both portfolios, which are the model portfolio in aggregate, would become like the model portfolio.   They are now clones of each other, as is true of all client portfolios that I manage.  My promise to clients is that they get what I get, so I create a clone of my portfolio for each client.  It certainly aligns my incentives with theirs.  Even after today, my next-largest client is 20% of my aggregate portfolio.  So, yes, I eat my own cooking, and in general, my cooking has been tasty over the last twelve years, even though the last year has been less than inspiring.

On the bright side, with the market up, it has allowed me to harvest an amount that will take care of my family for a year, while leaving my portfolio up considerably from one year ago.  That helps a lot when revenues from managing money are still light.

Hopefully, within a year, I will have enough clients that my revenues support my family.   We’ll see; but if that doesn’t happen I know there are a number of firms that would like to employ me, so my downside is limited.

One final note: one reason why this was a difficult decision was that the low rates for mortgaging my home were more difficult to obtain while self-employed.  Aside from my investments, I am not earning as much as I used to.  The fixed costs of liquidating part of my portfolio were 6% of the fixed costs of obtaining the mortgage.  Beyond that the question remains as to how well equities will do in the future, a question for which I have no good answer.

I think I made the right move here; I usually do, generally, but we will see whether this was the right decision over the next few years.

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.