In the independent advisor world, few are as respected by his peers, industry officials, and the press as Harold Evenksy, the chairman of the wealth advisory firm Evensky & Katz. On July 20, Evensky sent a letter to the firm’s clients and other interested parties in which he takes a comprehensive look at the current state of the economy and the markets, explores how we got to that current state, and peers into the future.
In typical ‘Harold’ fashion, Evensky describes in a thoughtful, calm way about how we arrived at the current state of affairs, always with the long view in mind. However, he begins his epistle by writing that while “I I wish I could say it’s silly” for investors to be concerned and confused about the markets, “unfortunately, with the last decade seeing some of the most dramatic markets in living memory, I can’t. It is disturbing.”
While making the case for a -slow-but-steady-wins-the-race approach to investing, Evensky then delivers a thoughtful and precise pr?cis of what the issues were that led us into the crisis of 2008-2009. Avoiding laying blame, he discusses the housing bubble, securitization, and government policies, providing a timeline of the key events during the crisis, then brings us up to the present, delivering abstracted prognostications of a Barron’s market guru panel. He then warns, however, that “the future is never clear in spite of the confidence of the guru. Long term investing based on short term vision is dangerous to your financial well-being. Even worse is trying to develop your investment strategy based on the current headlines.”
Evensky then advises investors to “turn off the market news and avoid the Jim Kramers of the world,” quoting Warren Buffett in an 1986 letter– “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.–and a 1992 Buffet note: “Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.,” before Evensky says simply “We agree.”
Evensky concludes by positing that “the economy still remains sluggish and investors’ short term fortunes remain on the cusp but longer term we see light (all-be-it modest), not an oncoming train. Translating that for investment purposes, we are cautiously optimistic that the market over the next twelve months will provide modestly positive single digit returns and, over the longer term (10+ years) a reasonable expectation is 9% nominal return (6% over inflation).” However, he admits to several shor-term concerns, including the lag in consumer spending, commercial real estate exposure and unemployment with disappearing unemployment benefits, sovereign debt weakness and “politicians.”
Based on those factors, Evensky says his firm will continue to focus “on the aggressive management of taxes and expenses,” while in portfolio building, “our primary equity strategy remains a diversified core and satellite design. However, he writes that “In recognition of increased market volatility (something we expect to be with us for the foreseeable future) and our awareness of short term risks, we added our “alternative” investment category to provide an element of risk management to supplement the risk management provided by traditional diversification. We continue to use our satellite allocations to make shorter term tactical ‘bets’.”
In addition to the letter, available here in unabridged form, Evensky & Katz is holding a listen-only conference featuring Lane Jones, the firm’s chief investment officer, to look at the markets in the second quarter and the future. The call will be Tuesday, July 27, 2010 from 1:00pm – 1:45pm EST. To call in, dial: 888-296-6828, with the PIN code 701435#
Harold Evensky was named one of the 30 for 30, the most influential people in the business over the past 30 years, in the May 2010 issue of Investment Advisor.