The prequel to the three-part timing blog comes from real
life. It gives me the chance to offer
you a peek behind our curtain on how the advisory business works when it works
well.
In early February, a prospective client came in to see
me. He was very concerned about the
steep market decline in January and wanted to know my strategy for waiting to
buy until the market was about to turn up again.
I told him I didn’t have one. He said he’d get back to me.
In early April, a couple (who did become clients) came in to
assess our services. He (always he) was
concerned that the market had rallied too sharply and wanted to know my
strategy for timing the pullback.
I tried not to smile.
If you know me, you know it didn’t work.
I told him I didn’t have one.
I added we would be purchasing a portfolio that was probably
worth between 90 and 110 cents on the dollar.
It would take a year or two before we even knew that. The object was to own securities with a
reasonable chance of being worth more than either of those two numbers when the
money was needed.
If they were already retired, I’d have said the object was
to buy securities with a reasonable chance of producing the income they need
and keep up with inflation.
Basically the same portfolio in both cases. Maybe the yo-yo is low that month and we
catch a break. Maybe not.
Here’s the one thing I absolutely know about market timing: Markets couldn’t care less when people come
to our door. Bear markets make clients
in damaged financial relationships more receptive but most folks come by
because they just retired or sold a condo or moved here and want face-to-face
service. I often meet them though a
happy client.
Now for the insight into my business: I’m not betraying any sworn secrets here but
this doesn’t come up in most conversations.
Well-run financial practices have defining disciplines for
asset management. It limits the range of
the practice but to be good, you have to concentrate on the needs of core
clients.
A broker just starting out will take almost any account
under almost any condition. If a
prospective client only wants companies that start with the letter “S”, that’s
what he gets. When dad told mom to never
sell their bank stocks, you’ll watch them for her.
Then the market drops 20% and you find out just how many
plates you had spinning on sticks.
Notice I said “had”.
That night, you realize every minute you spent researching
“S” stocks or watching banks crash that you can’t sell was time you didn’t
devote to the people who believe in you.
You don’t sleep much.
The next day, many of us decide to do our very best for our clients. We take ownership of
the client experience.
You feel reborn.
So the next guy comes in and says his brother-in-law thinks
XYZ Corp. is poised for big gains. He
wants you to put 50% of his account in the stock and send him daily research
bulletins. You simply say you only
follow companies in your carefully monitored investment discipline. Straying from those guidelines compromises
the care you owe your existing clients.
Either he decides he needs yet another inexperienced advisor
who can’t refuse his reckless strategy or he realizes your advice is more
valuable than his brother-in-law’s.
If you don’t get the account, you won’t miss it long. One of your happy clients is about to
introduce you to his best friend.
This approach doesn’t leave much room for timing
entry-points.
At shops where you sell what you’re told, compensation
doesn’t start until the money hits the account.
You turn the management over to people chosen for your client’s needs
and they make the calls from there.
At shops like mine where we make the buy and sell decisions,
we still can’t play hunches – ours or yours.
Everyone with the same objective gets the same basic portfolio. Every holding has a reason to be there.
Happy long-time clients may have nice gains in positions
that have seen their share of ups and downs.
Newer clients may have bought the same position at a recent top and
wonder why our timing isn’t better.
So now you know a little more about how successful advisory
practices keep their focus. We reach a
point professionally where we have to dedicate as much time as possible to the
people who trust us most.
Be one of them. sh
The opinions expressed here are those of Skip Helms and do not necessarily
reflect those of LPL Financial or anyone else. It is not possible to determine
the top or the bottom of the market. Investing involves risks, including the
loss of principal. Past performance does not guarantee future results. Please
consider potential transactions carefully and read all appropriate materials
before investing or sending money. No strategy assures a profit or protects
against loss. Securities and advisory services offered through LPL Financial, a
registered investment advisor. Member FINRA / SIPC
