Rational Decision Making in an Irrational World - Reflecting on 32 years of managing money
By: Beese Fulmer
Tuesday, January 15, 2013
The investment landscape has changed considerably over the four decades I have been following the stock market. When I started my career, the total volume of all shares traded on the New York Stock Exchange was about 12 million shares a day, compared to about 3 billion shares today--and many individual stocks now trade over 100 million shares each day. In the late 1970s, the stock market was out of favor after the turmoil caused by OPEC, the Nixon resignation, long gas lines, and accelerating inflation. Back then you had to seek out the business news--quite a contrast to the world investors live in today where they have the internet and multiple 24-hour investment channels with programming ranging from Fast Money to Mad Money. Today you can get a stock quote on your smartphone rather than wait until tomorrow’s newspaper to price your portfolio (Yes, young readers, that world was not so long ago!).
Unfortunately, the deluge of investment commentary has led to a focus on short-term trading--which has always had a negative effect on an investor’s long-term results. According to a note in Barron’s, the average equity mutual fund investor seems to get 85% of their sale and exchange decisions wrong. From 1990 through 2008, the average stock mutual fund returned 8.4%--while the average investor in those funds earned a return of only 1.9%--the difference being attributable to investors trying to time the market and chase hot funds.
As many of you know, at Beese Fulmer, we have always been advocates of investing for the long term. Our firm has championed this methodology for the last 32 years--and we will do so for the next 32 years.
When Bill Beese and I founded our firm in 1980, we started with $25 million in assets under management and currently manage over $300 million-- making Beese Fulmer the largest and oldest private discretionary investment management firm in the area. Much of our success has been due to our emphasis on buying quality companies at reasonable prices and avoiding the temptation of short-term, speculative investing. The virtues of long-term investing are known to many investors, but given the non-stop drumbeat of “breaking” financial news, long term can easily contract as a time period when potential profits appear fleeting if trading does not happen quickly.
I am pleased that our new website, www.BeeseFulmer.com, gives us a presence on the internet where prospective clients can learn more about us. The website project naturally led us to a process of reflecting on what has contributed to our success over the last 32 years, and that process, in turn, made us think about how best to communicate our philosophy to the average person. We’ve condensed these lessons learned into the Rules of the Rational, which are featured on our new website’s home page. When we evaluated the good and not-so-good investment decisions we’ve made over three decades, the good ones have always come from sound and reasoned judgments, while the money losers have occurred when our judgments were less disciplined and perhaps influenced by emotions. It’s no surprise then that rule number one for us is that “Emotions are the enemy of the successful investor.” Always look at the fundamentals and avoid the temptation to be swept up in the group psychology of the moment.
We consider trying to predict the next 100-point move in the Dow Jones Industrials as rank speculation with low odds of success, so we avoid it. Our time has always been better spent on evaluating management teams and business strategies; these are efforts that increase the odds of winning the investment game for our clients. Consequently, several of the other Rules of the Rational focus on investing with quality management teams whose stocks are at sensible prices and then letting the returns compound over time—that is the path to investment success.
As you may have noticed, we have updated our stationery and revised our name to Beese Fulmer Private Wealth Management, which more accurately reflects the general makeup of our client base of wealthy private individuals and families. Our firm was created with the encouragement and support of a few individual clients back in 1980, and we’ve found it fulfilling and satisfying to have helped them reach their financial goals over the years. Our approach to managing money, which was driven by serving these initial clients, has also benefited our many institutional clients, and it has been very gratifying to help these organizations fulfill their missions by generating good long-term investment results. In addition, we relish the strong rapport we’ve developed with the individuals who serve as trustees or directors of these organizations.
We have informally been performing many little extra “bookkeeping” duties for our clients over the years as we helped them achieve their investment goals, and our clients have responded with gratitude for this “value-added” approach we bring to our work. When we meet as a firm and reflect on the trends in our business, we notice that a few of these “extras” are always appreciated by clients. The most sought-after assistance is helping a client understand their asset allocation decisions in the context of their total wealth picture. In an effort to make this benefit available to every client (and make it a more formal offering going forward), we have created a Wealth Profile Annual Review, which enables a client to look at a variety of different factors relating to their total wealth, goals, and risk tolerance. Many clients also comment that they appreciate our ability to include on their statements their miscellaneous assets, which can include: homes, ownership in private companies, insurance policies, pensions, and fine and rare collectibles. It’s a “big-picture” approach that works!
Looking to the future, we have a strong team of investment professionals. Marv Laughlin and I have decades of investment experience, and I have extensive experience in seeing how estate plans, insurance plans, and distribution policies have worked--or not worked--over my investment career. While we concentrate on asset management and do not sell any financial products, we believe our independence and experience allow us to give valuable, objective input on those aspects of your financial affairs. Our newer professionals, Nick Perini and my son, Ryan, have strong credentials and excellent analytical skills to help evaluate new opportunities.
Our view of the investment business reminds us of the Japanese word Kaizen, which stands for “improvement,” or “change for the better.” We must always focus upon continuous improvement of the process of doing our work--a philosophy long practiced by Toyota. The investment business can be very humbling at times, and we will never assume that we’ve reached a time when we can stop learning and improving our methods. Nick and Ryan have brought new energy and ideas to the table--which are essential to maintaining this continuous timeline of improvement. Our support team of Karen, Marsha, Lora, and Diana has always been very dedicated to giving our clients a level of service that can’t be matched by any competitor.
A crystal ball never gives clear views of the future. Today, the picture is clouded by deficit spending, unfunded entitlements, and zero interest rates, but I’m not sure these are any scarier than what was happening in the 1970’s. We believe we can best navigate these challenging times by continuing to make logical, rational decisions about how and where to invest. So, enjoy the new website, and please offer any comments you think might help us improve it. We appreciate your loyalty and support, and wish you and your family a healthy and prosperous 2013!
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