raft is taking us through a class V whitewater, and we've got to keep paddling. This is the time to check the difference between how you feel and what you always thought you could handle in times of risk. If you're feeling any sense of panic then something besides the market is wrong. It could mean that while intellectually you understand risk, your emotions are playing your nerves like
on an out-of-tune Stradivarius. If that analogy doesn't do it, try chalk screeching on a blackboard.
On Tuesday afternoon, the Nasdaq was down more than 575 points and the
was down 504. I received calls from only two clients. One was a new client who was nervous, but realized this was bound to happen. The other was from a client in another state who likes to "go for it!"
This client manages about half her own money, and I manage the other half. She wants me to be very aggressive and take pretty high risk in her portfolio. I insist on having a couple of solid core holdings, like the
Thornburg Value fund, and she always asks me why I want "that stodgy stuff."
Her overall portfolio fell from $412,000 on March 9 to $323,000 on Tuesday. She was down almost 23% in less than a month. That is $89,000 worth of house and car payments and weekly groceries. My part of her portfolio was down about 5%, the worst of any portfolio I manage. We spent some time talking about the difference between head and heart and threw in a little extra on fear vs. greed as well as pain vs. pleasure. Then we talked about a lot of different concepts about the market, such as "speculative excesses."
Sure enough, we agreed there were some "tulips" in her portfolio, especially those with only a stem and no flower yet. In other words, some tech stocks with no earnings expected for the next decade. But my client insisted there were a lot of "great ideas" out there on the Internet. Then she popped the big question: "Is this a buying opportunity?"
A buying opportunity is a subtle thing. If the price is cheaper than when you last looked at it, then it must be a better buy. But if it is going down some more, it might be a lousy buy. The question implies that you know where the market is going and when it is going to get there. Nobody knows that. Another part of the question is: "a buying opportunity for what?" Which market are we talking about, and more importantly, which stock? Let me tackle the answer to these questions from a money manager's perspective.
Anybody who reads this column knows I am not a stock picker. I'm a mutual fund guy. Like a coach, I want to make sure the players (portfolio managers) I pick are the very best at the game before they make the team. Most of all, I want the best manager in a diversified portfolio that will match the risk tolerance of my client and help a client reach his or her goals. That is a mouthful of cliches, but it works.
I will pick the best managers for growth, value or a blend of the two; the best at small-, medium- or large-cap stock picking; the best in the international or global arenas and the best in any given sector.
My favorite managers include: Bill Fries (Thornburg Value), Helen Hayes (
Janus Worldwide), Claire Young (
Janus Olympus), Kevin Landis (
Firsthand Tech Leaders and
Value), Rick Lane (
FMI Focus), Irene Hoover (
Forward Hoover Small Cap Equity), Chris Davis (
Davis NY Venture and
Selected American Shares), Joel Dopperpuhl (
AIM Value), Mark Yokey (
Artisan International), David Alger (
Spectra), Phil Perelmuter (
Hartford Midcap), Bill Miller (
Legg Mason Value), Primecap Management (
Vanguard Primecap), Bill Gross (
Harbor Bond), Bob Rodriguez (
FPA New Income), Spiros "Sig" Segelas (
Harbor Capital Appreciation), Oscar Castro (
Montgomery Global Communications), Tom Marsico (
Marsico Growth % Income), Jim Oeschlager (
White Oak Growth), Ron Ognar (
Strong Growth), Art Bonnel (
Bonnel Growth), Marty Whitman (
Third Avenue Value) and a few others.
That's a good portion of my current "A" team. Obviously, I don't play them all at once.
Back to the question, "Is this a buying opportunity?" If you have some cash, you could consider adding to some of existing funds gradually. The managers can decide when and what to buy. I also continue to like the tech sector. Oeschlager and Landis are my main guys for that sector. This correction simply brings the sector back to reality, and it remains a good long-term play.
Here's the bottom line on what to do in this market with a mutual fund portfolio:
- Have an investment strategy that covers the long term.
Diversify your portfolio so you have some good core managers as well as sector managers.
Allocate you money consistently with how much risk you want to take.
Check the performance record of each of your mutual funds for the last one-, three- and five-year periods.
Check each fund for risk ratings and style.
This is probably a good time to take another look my
July 22, 1998 column on "playing defense" with your portfolio, my
March 10, 1999 column on asset allocation and my
March 17, 1999 column on assessing your risk tolerance.
If you have a well-diversified portfolio, there is no reason to panic or lose sleep at times like this. Have a good week!
Vern Hayden is a certified financial planner in Westport, Conn. He is a financial consultant and advisory associate of Financial Network Investment Corp. He also is an owner of Hayden Financial Group. His column is not a recommendation to buy or sell stocks or to solicit transactions or clients. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While he cannot provide investment advice or recommendations, Hayden welcomes your feedback at