Category Archives: 2015_Clients

2015 Client Letter: Once Upon a Time…

Once Upon A Time….

It seems like every nursery rhyme I read to William begins with “Once upon a time.”  So I’ll start this brief missive with “Once upon a time, there were capital markets that went up and down.”  We know this story finishes with the trend historically finishing “up.”  The few times one or two of our clientele have been “hurt” in my near 30 year career, have been when I let them talk me into sitting on the sidelines (better known as cash).  When I say, “hurt”, I don’t mean they lost their savings.  I mean they didn’t reap the benefits that participating in the capital markets provide.  As a result, they didn’t do as well as the rest of us.  I know now to push back even harder if clients get nervous.

I’ve had a few folks recently ask me, “How are you holding up with this crazy market?”  Well, my answer is “Which market are you referring to?”  You see, a properly diversified, globally allocated portfolio offers all of the potential returns that exist out there, across all markets.  So how are we holding up?  Well, when the S&P was down about 10% a week back, our portfolios were about level.  I’m happy with that! We see this time as an opportunity.  When others are selling, someone must be buying right?

Clients that have been with us ten or even twenty years know we’re holding up just fine.  They know we’re going to continue to do our job, keep them invested, and keep them properly allocated.  I’ve had a couple of newer clients ask me if they should stop contributing or stop investing until things get better.  So you’re telling me you want to wait until prices go back up?  So much for the old saying, “Buy low and sell high.”

In any event, don’t let these “markets” bother you.  Stay the course, keep focused on things you can control, like tax planning, estate planning, and planning for your legacy.  Leave the markets to the markets.  Invest globally in low cost, tax efficient diverse portfolios that have proven themselves time and time again.

Now back to the “Once upon a time” stories.  Our best to you all and have a great week!

Tom Wiseman and the team at Wiseman Wealth Management

2015 Client Letter: Mid-Year Update

Mid Year Update

Friends,

I hope each of you have had a tremendous start to the summer. I’d like to provide a brief update on things happening around our Firm, along with some commentary on the global markets and their impact on our portfolios.

Firm Updates

Lucy’s Visit To Dimensional

As many of you know, Lucy Zimmerman joined our team last December. Lucy predominantly works out of our Middleburg office, is a Registered Paraplanner, and fully licensed. Lucy was able to find time for a visit to Dimensional Funds’ home office during a recent trip to Austin, TX. This provided a wonderful opportunity to expose Lucy to the day-to-day work being done by academics, portfolio managers, and a host of other Dimensional representatives. Direct exposure to Dimensional’s operation helps our team members better explain to our clients the investment principles we so strongly believe in.

Dimensional Stewardship Award

Morningstar recently awarded Dimensional their highest rating (A) for fund family stewardship. Morningstar’s Stewardship Grade is based on the premise that good stewards are more likely to provide shareholders a better experience than poorer stewards. A few of the factors that impact this award are disclosure, quality of communication, compliance, performance, and others. While there are many great investment companies out there, we are incredibly proud to partner with one that is acknowledged for putting the interests of their investors above all else. The attached article provides specific details.

Licensed Team Members

Congratulations to Jordan Braithwaite and Akhtar Khan for recently passing their Series 65 exam. The Series 65 exam is designed to test an individual’s knowledge and ability to advise clients in the area of investing and discuss general financial concepts. In addition, Lucy Zimmerman recently passed the Series 66 exam. The Series 66 now qualifies Lucy to act as an Investment Advisor Representative and as a securities agent representing a broker dealer.

These accomplishments not only display a general commitment to our industry, but a desire to improve their knowledge and capabilities when interacting with you. We’re very proud of them.

Investment Committee

The Firm created a new Investment Committee in late 2013 as we became a Registered Investment Advisor (RIA) with the Commonwealth of Virginia. The committee meets quarterly and is tasked with searching the financial landscape to identify and review new investment opportunities. While our partnership with Dimensional Funds is the cornerstone of our approach, we’re continually looking for new opportunities that will compliment the investment principles we so firmly believe in. Each potential investment is put through a rigorous test to ensure its potential use will meet our Firm’s high standard.

Market Commentary

We’ve witnessed new events take place in the U.S. and around the world during the first half of this year: Supreme Court rulings, a terrible earthquake in Nepal, and others. In addition, familiar themes from previous years have reemerged: most notably Greece and the Eurozone.   These events have had varying impact on global equity markets. They remind us that unpredictability across markets remains the one true constant. Given all this, we see investors with the courage to follow a disciplined investment approach being rewarded.

We stood alongside each of you last year, as our diversified approach didn’t keep pace with the U.S. market rally that occurred in December. Like many of you, we were a bit disappointed but understood that an uptick in one sector doesn’t mean we abandon our principles. Experience tells us that those who fight the urge to rotate investments and chase returns will ultimately come out ahead. When it comes to investing, patience is undoubtedly a virtue.

In 6 short months we’ve seen markets regress toward the mean. The S&P 500 was flat through the first 2 quarters of this year. Depending on your specific asset allocation, the portfolios we manage are up anywhere from 0.55% – 2.61%. Of all things, the international sector is up 8.90%! Who could have possibly known the international markets would thrive through the first half of this year given all the uncertainty surrounding Greece? Please know we’re closely following the issues as they unfold in Greece and the Eurozone. However, we believe making any sort of financial or investment decision based on a news event is not in your best interest. Despite its attraction on CNBC, event-based-investing does not lead to long-term success. After all, Greece’s economy is about the size of Metropolitan Miami!

It’s difficult to say where markets will go from here. Will 2015 be a year to remember or forget? We take comfort in understanding the answer to that question is anyone’s guess. We know markets process information in a rapidly efficient manner. This allows us to focus on those things we as investors can control: Global Diversification, broad ownership of Small companies, and minimizing fees where possible.

Thank you for your ongoing support. We wish you and your families a safe & healthy summer. As always, please don’t hesitate to reach out to us with any questions.

The shooting incident in Chattanooga, TN yesterday serves as an unfortunate reminder of how precious our time together can be. We would like to send out our thoughts and prayers to the families impacted by this horrific event.

Sincerely

Jeffrey A. Hahn                                   Thomas R. Wiseman, II

Managing Director/CCO                     President

2015 Client Letter: Smart Beta

WA_LetterLogoWAddress
Fellow Investors,

I hope each of you are having a wonderful start to 2015. It appears many of us in Virginia have a bit more winter on the horizon. We can only hope that much like the financial media, the predictions of the weather media miss the mark.

Our investment team recently had the opportunity to participate in a conference call hosted by Dr. Marlena Lee, Dimensional Fund Advisors (DFA) V.P. of Research. The objective was to identify potential value from an investment strategy many of you may be hearing about: Smart Beta. We felt this strategy deserved some attention as it becomes increasingly prevalent in the investment community. To summarize, Smart Beta strategies weigh securities by “fundamental factors in an attempt to outperform capitalization-weighted indices” (Lee, 2015). These fundamental factors may include: book equity, sales, cash flows, total assets, dividends, etc. Please click here for a review of Capitalization-Weighted Indexing and here for a Bloomberg summary on Smart Beta. Smart Beta is often associated with providing two value adds:

Reduced risk without sacrificing expected return

  1. Increased returns by selecting stocks based on perceived mispricing

As a refresher, four factors do a remarkable job of explaining expected returns and are the foundation of our investment strategy. These return dimensions are represented in the following graph:

Graph

Dr. Lee evaluated several Smart Beta strategies and routinely found that any perceived advantages of Smart Beta are the result of the strategy unintentionally targeting the dimensions of expected returns as described above. As an example, a dividend focused Smart Beta strategy may have outperformed because it accidentally targeted more “Value” companies, not because it actually held better dividend paying stocks. Smart Beta is yet another reminder that correlation is not causation.

It’s worth noting that some Smart Beta strategies, e.g. Momentum, produced higher expected returns in computer simulations. However, these models required large, and probably costly, trading techniques. “A strategy designed to outperform the market is only profitable if it can do so after costs” (Lee, 2015).

 Smart Beta has built momentum among investors in recent years. The finance industry does a wonderful job of coining terms to attract new investors while simultaneously communicating the message of differentiation and value. However, it’s our opinion that Smart Beta does not add significant value to our investors once properly evaluated. Further, any advantages found in modeling specific strategies are usually discounted when taking into consideration the sizeable trading and tax cost required to support the strategy. We will continue to focus on the various factors influencing return premiums while managing the cost of the investment process.

We would like to make available a detailed summary of this analysis completed by Akhtar Khan in our office. Please don’t hesitate to reach out to Akhtar or myself for a copy. We would be more than happy to provide it.

Stay warm and we wish all of you the best!

Jeffrey A. Hahn

Managing Director/CCO

Book_IndexFunds

2015 Client Letter: An Investment Approach Bordering on Sloth…

Dear Friends,

I had lunch with a client earlier this week.  In catching up, the King’s Dominion type roller coaster market we’ve witnessed lately was an appropriate discussion topic.  Before I could weigh in, they facetiously stated “I already know your answer:  Do Nothing!”  What can I say?  They took the words right out of my mouth.  We both laughed but I couldn’t help but acknowledge that this was an incredibly boring, even lackadaisical, approach to something very serious.  Do Nothing in a time of turmoil runs counter to the traditional decision making process we¹ve all shared for years.  Where to go to college?  Where to live?  Where to eat dinner?  Big decisions and small decisions typically follow a similar decision making process.  That is, we¹re rewarded for our due diligence and research.  We seem to be telling people the ordinary decision making rules we¹ve all followed for years don’t apply to investing.  How convenient for us!

It’s certainly not our intent to flood your inbox but I wanted to point out we’ve made lots of decisions together.  Each one based on your specific situation.  Doing nothing during times of turmoil is actually a decision we¹ve consciously made.  Research shows this approach will reward us over time.  Here are a few items I came across this week to help highlight this.

Carl Richards ­ You Are Not Crazy

This is a great 2:28 audio file.  Carl explains we’re not crazy for doing “nothing” and that we¹ve made lots of decisions leading up to this moment in time.

John Hancock ­ Dynamic Markets

John Hancock sent me some good information on the importance of staying invested throughout all market cycles.  I’d like to specifically point out the following Interactive Graphs:

  • The Trouble with Market Timing ­ Being out of the market and accidentally missing only a few of the biggest days from a return standpoint has a large impact over the long term
  • The Importance of Diversification ­ Picking winners and losers each year is challenging.  Proper diversification is critical.

Dimensional Funds ­ Can you predict a good time to buy and sell stocks?

This video is a bit technical but highlights the challenges of consistently predicting markets.

We hope you have a wonderful weekend and commend you on the resolve you’ve shown over the last few weeks.  I leave you with the following quote from a well respected investor.  I¹m not sure we¹re ready to adopt this as our company slogan, but we do find it amusing!

“Benign neglect, bordering on sloth, remains the hallmark of our investment process.”

-Warren Buffett

Thank You,

Jeffrey A. Hahn

Managing Director/CCO