Q: When did you first become interested in the world of finance? Can you trace this passion back to your childhood?
A: My father worked with a stockbroker when I was growing up in Seattle, and I remember asking my father about investing. I majored in business in college. I started funding a retirement account and began to get interested in investments. I opened a brokerage account when I went to work with Ralston Purina in Eugene with someone about my age. After a couple of years, I thought I’d like to do it for a living. I moved back to Seattle, where I was from, and I had multiple job offers in the brokerage business.
Q: You began working in the financial services field in 1985, spending five years with a large brokerage firm in Bellevue, Washington. What kinds of problems did you observe in the commission-oriented structure there?
A: I felt management was focused on revenue for the firm rather than what was best for the client. Office managers asked about revenue generation frequently but never about client account returns.
Q: Can you talk about the differences between aggressive and conservative approaches to investment?
A: Most clients as they get older acquire more wealth and gradually become more conservative. Most people want to be aggressive after the market has increased in value. Then they go through a bear market. They can have portions of their account in more aggressive and some in more moderate investments. The market goes through up and down cycles. Sectors do the same.
Most business accounts are conservative—trying to capture somewhat greater gains than they can get at a bank but not getting into huge risk.
Q: What do you think are the most important concepts for investors to understand?
A: Knowing their own returns on a risk adjustment—understanding what is a good rate of return (ROR) on their investments. New clients often cannot quantify the ROR on their previous investments, nor have they compared their personal ROR to the market.
There is also the issue of how to compare to the market. For example, the media often quote statistics related to the S&P 500, Dow Jones Industrial Average, and NASDAQ. These are each different slices of the entire market. They do not include the activity of bonds, many small and medium sized companies, and much international activity. A retiree who holds a mix of bonds, international exposure, small and medium cap assets, and specialty sector offerings will not see their account performance match the most commonly quoted market indicators. It would be unrealistic to expect matching when their portfolio holds a different array of investments from the major indices, yet many investors are unaware of this difference.
Stock market investors should be looking to the overall health of the economy and the current corporate earnings outlook. These two factors give good indications of where to look for investment opportunities.
Q: How do you distinguish a slowdown from a recession?
A: The definitions themselves are relatively straightforward. A slowdown is just that – a slowing in economic activity. A recession is defined as a decline in GDP for two or more consecutive quarters. Slowdowns are more temporary in nature and don’t result in the broad changes to unemployment, housing prices, and such. A recession is noticeable throughout virtually all sectors of the economy and can be clearly seen in GDP and corporate earnings declines.
Q: Addressing the economic downturn in 2008, you wrote in one of your newsletters, “Catchy bad news reports sell more newspapers and draw in more TV viewers than more contemplative pieces.” This observation about the media’s tendency to overstate economic weaknesses while failing to acknowledge the strengths begs the question, Does this kind of doomsday journalism have a negative impact on investing?
A: The media tends to focus on fear aspects more than positive aspects of the economy. For example, oil prices began declining in late 2014. While the impact of lower oil prices is positive for most consumers, many news reports were about the minority who were likely to lose from the change. It influences behavior in some investors as they react to the emotional pull of the reporting rather than relying on objective data.
Q: Which print and online publications do you read and sources do you consult to stay on the pulse of the economy?
A: Wall Street Journal, The Economist—this one’s a favorite since it offers a global view. I also like Barron’s—it’s actionable and offers investment ideas. I read a variety of research pieces tuned to advisors. These have high subscription prices—Morningstar Office, for instance, is $8,000/year. Daily Graphs is $1,000/year. I also read Value Line, AdvisorIntelligence, and quite a few trade publications.
Q: You are member of the Medford Rogue Rotary Club’s Foundation Board, the SOU Foundation board, and past president of the University Club. Can you give some examples of how these organizations help the local community?
A: The cost of higher education has risen at rates well above inflation over the past two decades. The cost presents a real barrier to higher education for too many people, and the organizations I belong to look to address this issue. The Southern Oregon University Foundation provides scholarships to students attending our local university, SOU. Rotary Scholarships help lower and lower middle class go to the school of their choice, including to community colleges. These scholarships are about $4,500/year and are mostly general, although some have more specific criteria. The University Club recently started a scholarship program with the help of local principals.
Q: You’re an avid outdoorsman and a fly fisherman. What are some of your favorite outdoors activities, and what lessons can you draw from the natural world about investing?
A: I was in the Boy Scouts growing up. We’d go to snow caves and take week long lake and fishing trips. It was a wonderful experience. I’ve held onto this love of nature and am now part of a group called The Yellowstone Gang. Our goal is to fish all of the best rivers of the West before we’re too old to do so. (laughs) Every summer, we travel to a different spot in Montana, Idaho, Wyoming, Oregon, Washington, California, British Columbia, or Alberta, and we keep a record of our travels online.
As for what lessons I take from the natural world for investing, I’d say relating to clients, being able to put myself in their shoes. I have a realistic handle on their particular goals. And I try to make socially conscious investments whenever they don’t underperform the broad market.