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Bob Veres Leads FPA Panel: Updating Portfolio Strategies Since the Crisis

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bob veresBob Veres (left), Inside Information publisher and Financial Planning columnist, hosted a panel discussion on Wednesday at the FPA 2011 Retreat in Bonita Springs, Fla., which focused on advancements in portfolio strategies in the wake of the 2008-2009 market crisis. In addition to Veres, the panel included Christopher Cordaro, chief investment officer with Regent Atlantic Capital; Michael Henkel, managing director with Envestnet/PMC; and, Jerry Miccolis, principal with Brinton Eaton Wealth Advisors.

Cordaro began by noting conventional wisdom at the time of the crisis may have led him to act in a less-than-prudent manner in the days and weeks following the record sell-off.

“It’s been ingrained in us not to market time or chase performance or make panicky trades,” he said. “When money markets were threatening to break [the $1 mark], we moved all of that money to treasuries, which we thought was a pretty smart move. But we didn’t even think about getting out of equities; we didn’t have that debate with our investment committee.”

While ultimately the decision to stay invested in equities was a good one and those that moved from equities had trouble getting back in, Cordaro was concerned that not one member of the investment committee even considered the possibility. As a result, he said, in the wake of the downturn, the firm no longer rules anything out and ensures traditionally held biases are thoroughly vetted.

“We’re more disciplined and more flexible, which I know sounds like an oxymoron,” he adds. “We’re more disciplined in our valuation of our asset classes.  At the same we’re more flexible in not having to allocate to overvalued asset classes.”

Cordaro also mentioned the number of solutions now available in response to the crisis, “silver bullets” he said won’t work with the next generation of “vampires.”

“They’re producing solutions that won’t work the next time this happens, because the situations will be different the next time this happens,” he said. “You’d better make sure you’re prepared with silver bullets, wooden stakes and lots of garlic.”

mike henkelEnvestnet’s Henkel (left) mentioned that although it’s not currently popular, he in a big believer in asset allocation and efficient market’s over time.

“I’m not a big believer in back-tested scenarios,” he said. “Who has ever seen a back-tested scenario that didn’t work?”

Veres broke it to note no hands were raised form audience members.

Miccolis mentioned that, like many firms, he made tactical moves as a result of the downturn, but did not sell out of equities either.

“We were constrained by our investment policy statement, which didn’t allow us to move from the market,” he said. “We have since replaced every IPS with and IOC, or investment objective confirmation. There are no pie charts or asset allocation details; instead it’s a narrative about objectives, which gives us far more flexibility to act.”

The crisis caused a heavy amount of soul searching at the firm, Miccolis said, which led to the production of a white paper and an informal think tank comprised of like-minded advisors. But it was “painfully slow” in how it developed.

“We saw it as a race against time,” he said. “We believed we were in a race against time [to make necessary changes]. We didn’t know when it would happen again. We feel we got a free pass from our clients because nothing like that had ever happened. We won’t get a free pass the next time around.”