JR Snell Capital Management, LLC

One of the things that I love about Ron Popeil (Ronco… the Veg-a-matic, etc.) is that he actually uses the stuff he promotes… including that crazy spray-on hair that he’s pushed for years!

Go ahead and ask, “Why in the world would I be dragging the inventor of the Pocket Fisherman into a discussion about the inventor of Modern Portfolio Theory?” Because, one of the things that Ron Popeil has that Harry Markowitz does not (besides more money) is credibility. You see, Ron uses his own stuff… and Harry does not.

Straight from the horse’s mouth…

In a 1998 interview for Money magazine, author Jason Zweig asked Dr. Markowitz how he invested his retirement dollars. His answer was, “I have half of my money in stocks, and I’ve got half of my money in bonds.”

Dr. Markowitz elaborated, “Jason, I probably should have done some form of calculation to decide my weights. But the reality is, I do not know which one is going to perform better in the future, and I do not want to regret making the wrong choice.”

Stunning… The father of modern portfolio theory says that he does not use his nobel prize winning theories on his own money because… (drum roll please)… he cannot predict the future!

Suddenly, it doesn’t seem so outlandish to propose to our clients that while we can accept that MPT provides us with an outstanding set of tools to analyze past behavior, it is no way to build a portfolio for the future… mostly because the future is so darned unpredictable.

Now What?

If there’s no magic bullet or secret formula to this investing thing, the elephant in the room says that those investors who wish to survive (and thrive) in tomorrow’s markets might have to think for themselves (gasp)… or (at the very least) think for themselves enough to know they should hire those people who think for themselves.

As an unabashed plug to demonstrate that we are those people, we’d like to offer up a part of our set of solutions that require little explanation to see the sense in them. They’re an elegant starting place, not just because they are logical, but also because they are simple.

• Solution #1: Figure out where you’re going.

We have the Cheshire Cat on our web site’s menu bar for this very reason. If you do not know where you’re going, then it doesn’t really matter what you do with your investments. Does it?

If you wish to approach the management of your investment portfolio with a sense of purpose and direction, then we’re your guys. This is the very first thing we do with all clients: We firmly establish precisely where you are today and where you want to be tomorrow.

And we don’t fiddle around with silly pie charts and graphs about probabilities and potentialities based upon what would have happened if tomorrow were yesterday. Instead, we spend our time laying out a straightforward cash flow plan for every year from today until you’re 95 (or more if you want).

I’m still dumbfounded that we appear to be the only investment management firm that does this.

What everyone really wants to say to their advisors is this, “Cut the sales job… I want to know if I am going to be able to live the way that I want to live when I stop earning? And if not, what do I (we) have to do to make it happen?”

We couldn’t just go out and buy software right off the shelf to answer this question for our clients. So, we wrote it ourselves. That’s how I know that this analysis is enjoyed exclusively by our clients only. They enjoy great peace of mind because of it and you will too once you make the call to us (By the way, the number to schedule a little chit-chat is 480-575-7688).

Follow this link to see a few screen shots of our custom “Figure out where you’re going” analysis.

• Solution #2: Take only as much risk as you have to take to get there.

Although this solution seems embarrassingly obvious, the truth of the matter is that the industry standard methodology is, at present, quite the opposite:  You are tested to see how much investment “pain” you think you can take and then a portfolio is designed to show you the maximum return you can expect for that level of pain.  It follows then that your investments will always be managed right on the ragged edge of your tolerance for pain. This is called the “efficient frontier”.

The typical advisor/client relationship begins with the advisor peppering you with questions about how much risk you can tolerate. It’s a little like asking you how much pain you can handle without actually torturing you. You might be trying to be as honest as you possibly can… but until you’re on the rack (so to speak), you’ll never really know.

Our industry has not yet figured out that by continuing to push people to the edge, sooner or later someone’s going to fall off… or jump.