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

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