Author: 123jump.com Staff
Ticker.com
Last Update: Feb 12, 1:05 PM ET

Q: What is the history of the firm?

A: CapTrust Financial Advisors is a privately held, independent investment consulting practice located in Holland, Michigan with a team of 12 investment professionals. The firm was founded in December of 1997 and more information can be obtained at www.captrustholland.com .

Q: How do you think investing has evolved in the last three decades?

A: In 1982, we were coming out of a secular bear market that had gone on since the early 1970s. We were very distrustful of the stock market and investing in equities. The move from high to extreme low P/E ratios had caused stocks to provide very poor results. Moreover, people had not recently experienced a great track record of stock market investing with the exception perhaps of bank stocks. Investors were really interested in short-term certificates of deposits or bonds.

Over time, as I developed partnerships with clients, I worked with Certified Public Accountants who were very interested in having their clients receive more tax-free income and broadened the investment solutions that we offered from tax-free bonds into equities. That began to happen around 1983 and the equity markets had started to move up. Most people were still not willing to trust the market move up and that’s a parallel for today.

I believe unlike 1983 however, we are now in a long-term secular bear market. The average secular bear market lasts about 17 years and the current bear phase started in 2000. I also believe we’re going to see many moves up and down but not necessarily a lot of progress over this period of time. I think for a number of clients, investors, and advisors there is a real lack of trust in terms of investing.

Last year (2009) was a classic example of a year where people were very desirous to lock in profits and protect capital from loss which was very reminiscent of the environment when I first came into the business except the dividend yield was a lot higher then.

Q: Why do you believe that we are in a secular bear market?

A: Historically, every major secular bear market has ended with the price-to-earnings ratio of the market in single digits. We are not there yet in the current bear phase.

I believe the concerns that the market had during last year’s decline regarding the strength of the American economy and our lack of ability to grow ourselves out of the deficit will lead to another downturn or minimally a prolonged sideways-moving market. We are certainly living within the awareness of the strong possibility that it is the historical precedent for this type of thing to occur.

Q: What is your role in your clients’ wealth preservation?

A: At CapTrust, we believe our client’s success hinges on following a sound investment philosophy. We design an investment strategy including an asset allocation that is appropriate for each client’s investment strategy.

Wealth preservation has had some abrupt adjustments over time. To best explain it, when I started out in the business in 1982 it was expected of each investment professional to be a money manager. But what happened is a client would end up developing a portfolio based on a series of transactions of whatever looked attractive or what was available at the time. Ultimately, what happened is that over time, most clients would end up owning a portfolio of securities that wasn’t necessarily well thought out or part of an overall objective of meeting the client’s need. It was simply individual stock-by-stock or bond-by-bond being composed of that which made sense at that time but not as part of a holistic plan.

In the early 1990s we began to see that providing clients access to world class managers would add significantly more value than us being “stock pickers.”

In 2000 with the end of the great bull market a reminder emerged regarding money managers. Namely, money managers typically remain fully invested in the area of the market for which they have been hired. More specifically, a money manager typically is shunned for drifting from their stated asset class to other asset classes, but also will not deploy a wealth preservation strategy by holding a large amount of cash. What were reminded of was that we needed to develop the discipline to “manage the managers” more effectively rather than expecting them to have wealth preservation tactics.

In the mid-2000s, we began to develop disciplines using a number of proprietary ideas that we developed to gauge on a weekly basis the risk we see not only in the market but also in the managers that we are using.

We look at these different managers and what’s going on within their whole portfolio as opposed to an individual stock. That’s been very helpful as we’ve developed our discipline over time to just try to do the best job we can in not only managing client assets with a desire to protect wealth but also with the continued focus that we’ve always had on providing clients access to excellent investment managers or solutions.

We go through a very strict comprehensive investment policy process for every client. That really helps us understand if we are hearing the client and understanding what it is that they are trying to accomplish and how can we then best communicate with them about reaching their goals. We also desire to help our clients understand the probabilities of their goals achieving success and the action necessary to reach those goals.

Q: How do you formulate your investment policy process?

A: We develop a personalized plan that stays the course through market fluctuations, which is imperative for long-term success. At the core of each plan are the unique and personal goals of our clients. We match those goals with a stress tested strategic asset allocation. From time to time, with the intent to capture additional market returns and/or decrease volatility, we will recommend smaller tactical tilts that intentionally deviate from the long-term allocation in response to perceived opportunities within the market.

  1  2  3