Renegade Wealth Manager – Successful By Not Using a Buy and Hold Philosophy

Occasionally I stumble on someone who is not tarred with the same “Buy and Hold” brush as most Wealth Mangers are today, sucked in by the believe that a short 25 year bull market is a guarantee the good times will continue.

They tell you past performance is no guarantee of future returns but that you should buy and hold for the long term as markets always go up.

If you are in retirement you cannot afford to chance it. It’s not the up side you should be concerned about, its the down side and the potential for a serious loss to your nest egg. Rule #1 is you need to protect yourself against large losses in retirement.

The other day I came across a site W.E Donoghue & Co Inc who’s slogan is “Managing the Investment Opportunities of your Lifetime.” Unfortunately the site is not Baby Boomer friendly in my view because it doesn’t explain in simple terms what the philosophy is. It is all in financial-speak to me and may be dismissed by Baby Boomers before they take a serious look. It seems to be aimed at financial planners more than investors. But Baby Boomers should definitely take a close look at this site.

The philosophy is to base the investment choices on the reality of what the markets are actually doing. This means finding trends and then allocating assets to the best trending markets weighted in accordance with their relative strength. This simply means find a good sector, allocate some assets to it and riding the trend, then jumping off before it ends and find another trend in another sector. If not then stating in a money market fund is okay. It is buy and hold until the trend or momentum ends and then selling. A quote I read somewhere attributed to Mr Donoghue is, “Invest in the Best and Dump the Rest”. That sounds good to me.

This is very different from the buy and hold mentality whereby you jump into the markets regardless of what is happening because you cannot possible time it and eventually you will get a return. If we are entering a secular bear market like the one that ran in the 60’s and 70’s you could be waiting a long time for any return.

The Conservative Tactical Growth PortfolioPortfolio limits losses in a bear market to only 1.28% has the following features:

  • Use Sector Rotation in Domestic or International Stocks to seek returns on investment.
  • Use bond funds as a defensive strategy.
  • Can be up to 80% in fixed income funds if need be.
  • Uses a proprietary  risk reducing system that moves assets into money market funds when necessary.
  • Invest in open-ended mutual funds, ETFs or variable insurance sub-accounts.
  • It is designed for low risk tolerance investors (that’s us Baby Boomers)

So it covers all the bases of trend following and sector rotation using mutual funds and ETFs, can exit the markets into money market funds if the market offers no low risk, high probability opportunities and is actively managed to protect your nest egg from the downside.

One important feature I like is the site reports the portfolio performance each quarter using real data. As stated on the Report:

“Returns are composite client returns, net of all fees, applicable loads and expenses; and normally include the reinvestments of all dividends and distributions.”

(Note the returns are net of all fees)Conservative Tactical Growth Porfolio shows it can handle a bear market

It uses real data to chart the results, not back-tested data shown on so many sites. The charts show the results from September 2001 to the end of March 2008. It shows the portfolio was down only 1.28% vs. the S&P 500 being down 9.45%. That’s what you want in retirement, to avoid large losses.

Note how the S&P fell 20% by early 2003, but the portfolio stayed virtually flat and avoided large losses.

The principal, Mr Donoghue has been variously called “The Man with the Plan” and “The Father of Safe Money Investing”. If the chart above is anything to go by he has definitely earned both titles.

My only concern is the fees on small accounts which are:

W. E. Donoghue & Co., Inc.’s maximum annual advisory fees are 2.50% on first $100,000, 1.95% on next $150,000, 1.75% on next $250,000, 1.50% on next $500,000 and 1.00% on amounts over $1,000,000.

But if Mr Donoghue’s Company can avoid large losses to your nest egg in bad years and consistently get good returns in good years after fees and charges and you don’t want to manage your nest egg yourself, this service may well be for you. They have a proven track record for success too.

One Response to “Renegade Wealth Manager – Successful By Not Using a Buy and Hold Philosophy”

  1. Money Ideas from Forbesfeeds…

    As John Paul Getty once said \”If you owe the bank $100 that\’s your problem. If you owe the bank $100 million, that\’s the bank\’s problem.\” That\’s a very interesting observation in light of the recent financial crises….

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