It's hard to imagine that a sports star with a multimillion-dollar contract and a penchant for flashy sports cars could also be a conservative investor.
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But that's exactly what Leland Faust, financial adviser to some big names in sports, says many of his clients -- baseball players Paul O'Neill and Rickey Henderson, and basketball player Tim Duncan among them -- are and should be.
Faust is also the manager of the (CSIIX) CSI Equity Fund, a large-cap fund that has averaged an 8% annualized return over the past three years, according to Morningstar.
Here Faust talks about working with celebrity clients and his view of the market.
TSC: What's it like working with sports stars?
Faust: There are interesting stories that pop up over the years. One thing with working with the sports players is the fact that they're so young. It really does influence how you work with them because in a typical situation with a well-to-do business executive, he's had a lot of time to get used to the idea of having money, whereas a sports star typically starts with nothing and is instantly very wealthy.
There's an education process that goes on in working with the sports stars, too. And certainly, sometimes it spills into some questions which you wouldn't get from a Fortune 500 executive because he's been through it.
TSC: Are there some outlandish things that some of your clients have bought?
You certainly get a lot of questions about cars, although not for investment purposes but for consumption purposes. (
) Oftentimes you are starting out with the very basics, where you have to explain what the difference between a stock and a bond is.
Then, it's fun to watch the client grow over time to the point where, a few years later, they understand the difference between long-term bonds and short-term bonds and how interest rates affect them, as well as risk and taxes.
TSC: How hard, or easy, is it for you to motivate these youngsters to make smart investments?
It varies a lot from person to person as to how inclined they are to want to save their money. Some of them understand very well that their careers are relatively short, that they have 10 to 12 years, maximum, ahead of them and that they need to put away money for the rest of their lives.
Others don't quite understand that, in fact, it's going to end someday. So the education process that we have to be involved with starts there: making them understand that it makes a whole lot of difference between saving your money wisely for 10 years, rather than playing around with your money for five years and saving for
For some of the guys, success has come at such an early age. They've worked very hard to get where they are, but they haven't had to do it, you know, for as many years as other people who have achieved financial success. So we have to get them thinking that financial success
a slow and steady process.
TSC: What are some examples of smart financial moves your clients have made?
Fortunately, we have had a number of clients who have made significant charitable gifts over the years. One that comes to mind is a client who had a very close relationship with the Midwest church in which he grew up, and he financed a whole new building for them, adjacent to the church, with a gym and a recreation center, which he named for a family member.
He did that not by writing a check, but
through appreciated securities, so he got a further tax benefit on top of just being able to write off the gift to the charity. This is a proverbial case where everybody wins, everybody was happy.
TSC: One of the emphases you have in the mutual fund you run is that you like to invest in blue-chip companies and stick with them for the long term. How hard is it to convince your clients, sports pros and otherwise, to buy into long-term thinking in a year when the market is so bad?
Certainly, when times are as difficult as they are now, financially -- we were certainly in a recession before Sept. 11 and that just will make it worse -- we changed our allocations away from stocks and more into fixed income. So a typical client now with us is 50% in stocks, or perhaps even less than that.
So, once you have your allocation set up so that it's more conservative, then having a client stick with the stock selection is a discussion that's a whole lot different. It's much easier when they know they have the stability in the fixed-income portfolio.
TSC: Before Sept. 11, what was your recommended breakout for stocks vs. bonds?
I don't have an across-the-board plan that works for every client. We've been drifting lower
in stocks for the last couple of years. At the high, we were probably closer to 65% to 70% in equities, and now that's lower.
TSC: Which stocks and fixed-income products do you like right now in your mutual fund?
We are always looking for companies that can sustain their earnings growth and resist downward pressure. We like companies like
Johnson & Johnson
Procter & Gamble
When we manage fixed income, we typically do one of two things: Either we use high-rated tax-exempt or Treasuries for their security and predictability, at the expense of a higher yield, or we look for a specific fixed-income sector.