“For nothing should be done without a purpose.” — Marcus Aurelius, Roman emperor (161-180 A.D.) and philosopher
What is the purpose of your capital?
Corporations have mission statements and core values, but few families have considered the basic strategic question: What are we trying to accomplish with our capital?
In a business setting, executives are evaluated and compensated according to the progress they make toward defined goals.
Naturally, executives want a successful asset management strategy. But you cannot measure performance without first defining your metrics. Put simply: What does success mean to you?
By default, Wall Street defines success according to benchmarks and says you should beat the performance of the S&P 500 every single year. Maybe that’s the right measure of success for you, but maybe it’s not.
The Untouchable Intangibles
I think of assets in terms of tangibles vs. intangibles. Business school teaches us that we can only manage what we count — those are the tangibles. But the way I see it, families count the intangibles; the things you can’t put value on.
The things that are most valuable to me are things that I cannot touch, feel, drive, or inhabit. My key touchstones are the untouchables: integrity, independence, honor, and faith. And the untouchables are among my five key tenants — my personal what and why.
Ultimately, for me and my family, our central tenet in our asset management strategy is to be anti-fragile. I don’t want sudden shifts in the economy or the stock market to disrupt my lifestyle.
To help protect myself from that disruption, I need to have a robust allocation to cash. I need to align my capital to my personal goals, even if it means underperforming an all-equity index.
I’ve revealed my goals and my purpose. Your situation and your goals are different than mine. We have to work to reveal these goals by defining your own purpose. That’s why you need to invest the time to define your goals and the things that are most important for you.
My family puts our capital to work in service of our purpose and goals. Instead of buying a new sports car every year, we might go on an adventure vacation where my children can grow, learn new skills, and test the limits of their abilities. We chase experiences that help us develop and grow.
What are your vital goals? And is your capital being put to work in pursuit of those goals?
It can take time to define the purpose your capital should have. In my case, it took two years. But once you define the purpose, building an asset management strategy to meet those goals becomes easier and more intuitive.
Three Pillars of Investing Success — Discipline, Process, and Rules
Most experienced investors already know and understand the perils of trying to time the market on a day-to-day basis. Besides, busy executives generally have neither the time nor an inclination to engage in speculation on individual securities.
Instead, many affluent investors default to placing their money in funds that track indexes like the S&P 500.
Again, depending on the goals and purpose of an individual or family, investing in index funds might be the right decision. But you should make that decision purposefully — because it seems like the right option for you — not just because everyone else is doing it.
Pulliam Family Office offers another approach. We carefully track the relative strength of six major asset classes:
- U.S. equities
- International equities
- Fixed income
We regularly rebalance client portfolios to the strongest relative-strength asset classes. Within an asset class, such as U.S. equities, we then rebalance further into the strongest sectors, such as technology, utilities, and industrials. What constitutes the most desirable sectors changes according to macroeconomic developments, policy changes, and various other factors.
The Key Takeaway
Historical performance is no guarantee of future results, but I can say that from 1990 to the present day, someone taking a disciplined, rules-based rebalancing approach favoring the strongest asset classes and sectors could have dramatically outperformed someone who took the default option to simply buy and hold an S&P index fund.
Pulliam Family Office applies this relative-strength approach to help you move nimbly between playing offense when markets are rising to help preserve your gains when we need to move to defense.
Set up a meeting with me so we can work together to design a rules-based, disciplined plan for reaching your financial and personal goals.
Any opinions are those of John Pulliam and not necessarily those of Raymond James Financial Services or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Diversification and asset allocation do not ensure a profit nor protect against a loss. Investing involves risk, and you may incur a profit or loss regardless of the strategy selected.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.