March 8, 2011

As Markets Crawl Out of 2-Year Pit, What's Next? Fisher, Sonders & Others Respond—a Slide Show

Ken Fisher, Liz Ann Sonders, Ben Warwick, Sam Stovall, Jeffrey Kleintop & Malcolm Gissen

MARKETS DIG THEIR WAY OUT

 

On March 9, two years after the S&P 500 fell to 676.53, in what proved to be the nadir in the markets of this financial crisis, the critical question is where are the markets now, where are they going and what should advisors and their clients take away from the crisis?

AdvisorOne canvassed some of the best investment minds—money managers and observers alike—to plumb their wisdom on what the long-term effect of the crisis would be on advisors and investors, and where the markets are headed.

AdvisorOne spoke with Ken Fisher, Liz Ann Sonders, Sam Stovall, Ben Warwick, Jeff Kleintop and Malcolm Gissen.

AdvisorOne canvassed some of the best investment minds—money managers and observers alike—to plumb their wisdom on what the long-term effect of the crisis would be on advisors and investors, and where the markets are headed.

 

Ken Fisher, founder of Fisher Investments Inc.KEN FISHER
CEO,
Fisher Investments Inc.

 

In an e-mail exchange with AdvisorOne on Monday, Fisher, the billionaire investor, answered the question of “where are we in the market cycle now?” by responding that “this is likely to be a relatively flattish year.” However, Fisher said that 2011 may well provide “the pause that refreshes before the bull market resumes with gusto in 2012.” So where will we be a year from now? “About where we are right now by most major measures,” Fisher responded, “like the global stock market indexes and global long-term interest rates.”

As for the lessons learned from the financial crisis, Fisher counseled advisors “Don’t believe the consensus. Big bear markets are followed by unbelievable bull markets.” His parting words of caution, "You can’t believe what most folks are saying.”
 

AdvisorOne canvassed some of the best investment minds—money managers and observers alike—to plumb their wisdom on what the long-term effect of the crisis would be on advisors and investors, and where the markets are headed.

 

Liz Ann Sonders, Schwab’s chief investment strategistLIZ ANN SONDERS
Chief Investment Strategist
Schwab

 

Sonders does not do forecasts and calls herself an “equal opportunity critic” when it comes to the political class, but as for what advisors can learn from the crisis and the aftermath, she said in a Tuesday interview that the most valuable lesson “is that the best gains come off the worst times in the market.” She said it’s “fairly typical for the market to be a leading indicator” that “anticipates” the return of the economy.

While she expresses bemusement that the “perpetual bears don’t see how the market could be doing so well because we haven’t yet seen robust economic growth,” she in turn is “amazed that this simple relationship between the market and the economy” that has “always existed” is overlooked by so many.

Acknowledging that many Americans “have become soured on our own prospects,” she quietly declares that “I’m not one of them.”

AdvisorOne canvassed some of the best investment minds—money managers and observers alike—to plumb their wisdom on what the long-term effect of the crisis would be on advisors and investors, and where the markets are headed.

 

BEN WARWICK
CIO of Aspen Partners and Quantitative Equity Strategiesr

 

“What I think about is that the last two years—with an emphasis on March 2009—is the importance of the advisor in the process; one of our biggest roles is to keep people from hurting themselves; to keep them in the market and to keep them from selling at the worst time. The folks who hung in there are probably ahead of where they were when this all started—even if you’re giving people 60-40, net of fees, they’re better off.”

Those are some of the lessons Warwick learned in the financial crisis and its aftermath. Warwick, a regular blogger for AdvisorOne in addition to writing the monthly Searching for Alpha index newsletter, says that advisors perform that role by communicating regularly with their clients, in good times and in bad but especially in volatile times. For him, the advisors who “are the most successful in this business are willing to do the most painful things: buying when everybody is selling, and vice versa."

So where are the markets now, and where will they be in a year’s time? For Warwick, the “warning signs in the market are focused on Apple stock. I love Apple products, it’s not the company—the problem is Steve Jobs. The [PowerShares] QQQ ETF is 19% Apple, “So the fate of this company is based on a guy who had cancer, had a liver transplant, and now is on a medical leave. Everyone’s OK with that, but I’m not.

AdvisorOne canvassed some of the best investment minds—money managers and observers alike—to plumb their wisdom on what the long-term effect of the crisis would be on advisors and investors, and where the markets are headed.

 

S&P Bull market since 1970SAM STOVALL
Chief Investment Strategist
Standard & Poor's Equity Research Services

 

"The average bull market duration since 1932 is 45 months," Stovall told AdvisorOne on Tuesday. "We're at the mid-point."

In fact, "four of 11 bull markets since 1949 died in their third year." This could be because "the economy ran out of steam, or because interest rates or inflation increased," Stovall noted.

Stovall had many prognostications for what we can expect in the coming year, though he warned, "economic growth could be softer in the last half of 2011 and the first quarter of 2012."

Sam Stovall of S&PStill, "if oil prices don’t go above $150 per barrel, it could be a good year, with mid- to high-single-digit growth in the S&P," Stovall (right) said.

"Don't think diversification failed us," Stovall added. "Our memories and expectations failed us. In a bear market, there's no place to hide but cash and Treasury bonds. It doesn't matter the style, size or region of equity markets, they'll go into a tailspin.

"In modern portfolio theory (MPT), you want to try to maximize returns and minimize risk, not eliminate risk entirely."

AdvisorOne canvassed some of the best investment minds—money managers and observers alike—to plumb their wisdom on what the long-term effect of the crisis would be on advisors and investors, and where the markets are headed.

 

Unemployed man on Wall Street. (Photo: AP)JEFFREY KLEINTOP
Chief Market Strategist
LPL Financial

 

What we learned from the financial crisis is that traditional diversification didn't work very well in helping advisors and investors avoid losses during the downturn, according to Kleintop. Alternative asset classes proved they can be effective tools for risk management, but avoiding risk altogether is not the answer, he noted in an e-mail interview.

Jeffrey Kleintop of LPL FinancialThe financial crisis has left investors with less time to save for their retirement and more ground to make up," Kleintop (right) said. "A purely defensive orientation is unlikely to achieve retirement goals for most investors.”

So where does that leave us today?

“Looking ahead, it is likely to be a rocky transition as the economy comes off of intensive policy support to see if it can grow on its own. I expect a year from now to see higher interest rates and slower growth with a stock market not dramatically different from the current level,” Kleintop said.

AdvisorOne canvassed some of the best investment minds—money managers and observers alike—to plumb their wisdom on what the long-term effect of the crisis would be on advisors and investors, and where the markets are headed.

 

OIl exchange tradersMALCOLM GISSEN
Founder of Malcolm H. Gissen & Associates
Manager of Encompass Fund

 

As much as the markets and economic crisis of 2008-2009 ruined the lives of individuals across the world, it had an equally deep and lasting impact on financial advisors, both at the professional and personal levels.

“As an investment advisor, you cannot be a reasonably sensitive human being and not be strongly affected by the events of 2008,” says Gissen. “Losing large sums of money for clients was one of the worst experiences of my life. Many of our clients are our friends and to see their life savings decline was gut wrenching.”

Malcolm GissenOver the past two years, markets have healed and have regained both stability and strength, and morale is back in the ranks of investment advisors. From here on, Gissen (right) is cautiously optimistic.

He believes the market will continue to rise, but at a slower pace, and that it will actually be higher a year from now. The economy, too, is expanding slowly, he says, and is experiencing growth in some sectors. His top picks are energy, precious metals, industrial metals and agricultural companies.

We continue to like these resource companies and we are seeing lots of opportunities in those sectors,” he says.

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(Photo Credits: Main pictures 6 and 7 by The Associated Press)

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