After one of the worst meltdowns in Wall Street history, some local investment advisers have abandoned the “buy and hold” mentality, as others remain believers.
The advisers, who do everything from retirement planning for workers to securing fortunes for retirees, largely invest in stocks and bonds for their clients.
They’ve just come through two big stock downturns—the fall 2008 meltdown and a second, bigger drop in February and March.
Even with a runup on Wall Street since the spring, the broader market as measured by the S&P 500 index still is off by about a quarter from 2008’s high in May.
The downturn proved to be a test for advisers.
“We reached the point of capitulation for a lot of people,” said David Emmes of the Newport Beach office of New York-based Bank of New York Mellon Corp.
Many local advisers said they urged clients not to sell into a panic at the market’s low in March.
With the S&P 500 now up about 55% since then, many advisers have their sights on recouping what was lost since mid-2008.
The biggest concerns for investors now are the economy, inflation, a weakening dollar and potential tax hikes, advisers said.
Ralph Linzmeier of New York-based Morgan Stanley Smith Barney LLC’s Irvine office said he doubts that Wall Street’s surge will hold.
“It’s hard to believe this recovery to be dynamic and self-sustaining,” he said.
Linzmeier is betting shifts in the global economy will cause stocks to move mostly sideways as they did from 1965 to 1982.
“Buy and hold is dead,” he said. “But it’s not the end of the world at all.”
Emerging Markets
Linzmeier said he’s looking at investments in Asia and emerging markets.
He directly invests more than $420 million for clients. Linzmeier’s average account size is in the $3 million range, he said.
Emmes, of Bank of New York Mellon, said he’s also shifting investments to emerging markets.
“We’re seeing more opportunities now than a year or two ago,” he said. “We’re looking at emerging markets to lead the world in a recovery.”
Emmes said his customers carry an average balance of about $5 million.
Before the market crash, Emmes said he started investing more in bonds that paid steady income.
Trudy Haussmann of Newport Beach-based Haussmann Financial Inc. said she hasn’t changed her strategy much in the past year, contending long-term growth will prevail.
“We have not abandoned buy and hold,” she said.
With $400 million under advisement for 1,800 households, Haussmann’s firm mostly focuses on retirement savings for people with 401(k) accounts.
For her, the key to beating the market is in picking successful mutual fund managers.
“It’s the same people beating the market year after year,” she said.
During the downturn, Haussmann said she advised clients to invest the same amount each month in their stock and bond funds to take advantage of lower prices.
For customers already living off their investments, she made an emergency move to sell their foreign government bonds that were showing a nice profit.
The move gave retired clients, who had on average about 15% of their accounts in the bonds, a two-year supply of cash they could feel more comfortable with.
“People overestimated their risk tolerance,” Haussmann said. “Some of them were emotionally shaken.”
John Evans, a vice president and regional manager for San Francisco-based Wells Fargo & Co.’s private client services in Newport Beach, said he’s a believer in holding stocks for the long term.
“No one has a crystal ball. But as turmoil happens, so do recoveries,” he said.
Wells advises on small accounts as well as ones at more than $1 million.
The bank saw few people cashing out when stocks were at their lows, though it did see some shifting into bonds, Evans said.
With the stock market rebound this year, Evans said some of his clients have become more aggressive.
But some advisers to the wealthy are keeping more conservative goals, said Tom Blanchfield of Merrill Lynch Wealth Manage-ment’s Private Banking and Investment Group in Newport Beach, part of Charlotte, N.C.-based Bank of America Corp.
“It’s always a tough thing guessing the market,” he said.
With $1.4 billion under management for clients with an average of $20 million invested, Blanchfield said his job is to make sure they stay wealthy.
He largely invests in municipal bonds, which offer tax breaks and annual payouts.
Last year, federal bonds known as Treasury Inflation-Protected Securities, or Tips, were one of his best investments despite an absence of inflation, Blanchfield said.
For those who lost big with stock investments, how well they handled it mostly had to do with experience, according to Blanchfield.
Older clients who had been through market crashes and recessions before had less anxiety, he said. More aggressive investors suffered more.
Most advisers said clients have become more conservative after the crisis.
“They’re more attuned to volatility and risk,” Evans said.
