Back To The Future – 12 Portfolio Management Principles To Survive The Current Bear Market

Over the past several months, the current global bear market has been an emotionally trying and painful experience for both Advisors and their clients. Additionally, the speed and severity of the asset declines, together with the underlying structural issues in the global credit markets, have caused many investors to reconsider their true tolerance for risk and rapidly shift their portfolios to only the safest of investments. Clearly in the current economic environment, ‘safety trumps growth’ but we believe that investors who have true long-term needs will eventually need to decide upon prudent portfolio structures that best suit their unique investment objectives and risk tolerances.

As a result, we’ve written an article, whose purpose is not to speculate as to the short-term future direction of global capital markets but to share our philosophical beliefs about prudent and proven portfolio management principles that stood the test of time, through both bull and bear markets, in helping clients meet their financial goals. There’s an old aphorism, variously attributed to J.P. Morgan and other legendary investors, that states: “In bear markets, stocks return to their rightful owners.” At HighView Financial Group, we believe that the corollary of this statement is that “In bear markets, client portfolios return to their rightful Advisors”.

Advisors who are weathering this global investment storm are those who have adhered to a set of portfolio management principles first developed by investment counselling firms such as Scudder Stevens & Clark in the early 20th century. They are the Advisors who only a few years ago were being pressured by some clients, prospects and colleagues to “boost portfolio returns” by engaging in higher risk strategies but who had the tenacity to abide by their principles. These Advisors may have lost some clients and prospects during the last bull market. However, they are now finding that those same clients and prospects are returning. In the current volatile environment, “client money is in motion” amongst Advisors and firms as we believe that these clients are seeking the confidence and comfort that ONLY comes from a prudently designed portfolio managed to the highest standard of care. As a result, we believe that the focus in the management of wealth over the next several years will shift back to the standards of years ago in which phrases such as “Preservation of Capital” and “Responsible Growth” were core to the Advisor-Client relationship – in other words, it will be “Back To The Future”.