Pershing
November 02, 2009
The U.S. stock market has appreciated more than 50% from its March lows, signaling the quickest and largest rebound in equities since the short-lived stock market rally during the Great Depression. Historically, these price rallies are temporary, unless there is an improvement of underlying economic and investment fundamentals. After months of lower asset prices followed by a return of confidence, investors simply need to ask themselves, “How is it possible that a downturn in the markets brought on by economic ills and debt levels built over the last 20-plus years are rectified in less than six months time?”
Although investor sentiment seems to have improved over the past six months, economic fundamentals continue to lag. Our analysis reveals that credit markets have slightly improved, consumer balance sheets are still underwater, the government continues to spend money it does not have, stocks are expensive and the real estate market has not yet bottomed. However, despite the strong headwinds that continue to face both consumers and investors alike, we believe there are still strategic opportunities for your clients to preserve capital and grow investments.
Many of us know that during times of financial stress, especially when associated with credit expansion and then contraction, asset prices generally move in tandem. Modern portfolio theory has taught us that diversification can be created by combining portfolios of assets whose prices do not typically move together based on underlying economic and investment fundamentals (low to negative correlation). There are often temporary periods during times of market downturn or crisis when an investor’s emotions affect their investment decisions depending on their level of risk aversion. We at Lockwood Capital Management believe there are opportunities to better manage risk in investment portfolios.
Focusing on an investor’s long-term financial objectives and considering personal and systematic constraints—such as inflation and taxes—is, in our view, the optimal approach to investment management. Ongoing reviews of an investor’s portfolio should center around the growth of assets versus the discounted future liability of financial goals (accounting for taxes and inflation). This methodology is the primary tenet of successful risk management, as opposed to the “knee-jerk” reactive approach that has been adopted by investors who focus on the short-term vagaries of the capital markets.
We are encouraged by the long-term prospects of the investing landscape and continue to believe that maintaining a well-diversified portfolio, managed with an appropriate time horizon, is the key to achieving clients' investment goals. A disciplined approach to risk management in investment portfolios is best left to those professionals who have managed through several business cycles and financial crises, and have a track record of taking the emotion out of investing. We encourage you to learn more about our investment philosophy and the ways in which we can help you fulfill your clients’ financial objectives.
Lockwood Capital Management, Inc. (LCM) is an SEC Registered Investment Adviser and an affiliate of Lockwood Advisors, Inc. and Pershing LLC, all subsidiaries of The Bank of New York Mellon Corporation. Pershing LLC, member FINRA, NYSE, SIPC.
The statements contained herein are based upon the opinions of LCM and the data available at the time of publication and are subject to change at any time without notice. Neither the information nor any opinions expressed herein should be construed as a solicitation or a recommendation by LCM or its affiliates to buy or sell any security or investment. This communication does not constitute investment advice, is for informational purposes only and is not intended to meet the objectives or suitability requirements of any specific individual or account. Diversification and strategic asset allocation do not guarantee a profit nor protect against loss in declining markets. Past performance is not a guarantee of future results.
For more information about LCM, as well as its programs, fees and services, please refer to the Form ADV Part II Brochure, which may be obtained by writing to LCM at the following address: 10 Valley Stream Parkway, Malvern, PA 19355, or by calling (800) 200-3033. This document is reprinted in its entirety with permission from LCM.
Don Robinson
Chief Investment Officer,
Lockwood Capital Management, Inc.