Investment Strategies and Tactics in Tricky Times

As we wait for the financial world to react to events while unsure of what theme or themes will predominate economic thought in the future, there are some strategies and tactics to keep in mind during tricky times. A popular endowment model strategy is rebalancing a portfolio. As different sections of a portfolio gain value quickly, or slowly, or even regress, the original, and hopefully optimal, asset allocation percentages change to something different. At various times, perhaps annually, the increased percentages are sold down to their original allocation and the funds raised are reinvested in the decreased percentage assets, thereby rebalancing. As a tactic to make some investors comfortable with the risk profile of their portfolios, this works. However, one author points out that he has “yet to see a study that shows it improves your returns,” and in fact it sometimes can mean “missing out on big returns.”[1]
Some investors and traders believe in a different strategy: “Cut your losers short and let your winners run.” Letting your winners run may seem easy, but for portfolio managers with good alternative ideas, there is a desire to get going. One thought holding them back is that those new, good ideas are probably right, but they may be early.

A favored tactic at Woodstock, made possible by owning individual stocks in lots in a separately managed account, is tax-loss selling. How important is being able to manage taxes to a portfolio? A recent study showed that “systematically taking losses that reduced taxable gains boosted after-tax returns by an average of 0.82% a year from 1926 to 2018 for an investor in the 35% tax bracket,”[2] This gain wouldn’t be included in performance calculations, but the investor should notice the increase in portfolio value over time.

One emerging theme seems to be investing heavily in private equity. As we’ve mentioned before, there seem to be too many dollars chasing too few good deals. An accepted definition of a “good deal” is making two to three times your money in a reasonable time period, say five to seven years. The last economic downturn, in 2008, lengthened that time period to ten years or more. What’s the latest trend? The latest trend is to move the goal posts and shoot for “a few percentage points more than corporate and government bonds pay”[3] as a return. The large private equity firms are diversifying into “lower- yielding but steadier businesses.”[4]

They are evolving from private equity firms to “broader alternative asset giants” “catering primarily to insurance companies looking to park reams of cash from selling retirement-savings products known as fixed annuities.”[5]

Some of you may have noticed recent changes at Woodstock. We’ve welcomed back Ben Dawson as a portfolio manager, with Ben returning after 25 years of running his own investment management firm. All of our managers bring their unique perspectives on investment management to Woodstock and to their clients. Ben’s will be on display on our website videos as we add his commentary over the next few months. Also, we have promoted from within. David Layden has become a part-time investment manager while still fulfilling responsibilities as head of our custody operation. David completed his MBA in finance and business analytics at Babson during his employment at Woodstock. Finally, on June 30, assets under management at Woodstock passed the $1 billion mark. While we have been here before, 20 plus years ago, the current team has built our clients’ assets up the hard way: 10% inspiration, 90% perspiration. We thank them for their efforts and thank you for your business.

We know that you are the most valuable business development tool that we have. Your referral of a friend, colleague or family member to us is the most important way that we grow.

We thank you for your support and want you to know that we are dedicated to serving your best interest.

William H. Darling, Chairman & CEO
Adrian G. Davies, President


[1] WSJ, 6/7/21
[2] WSJ, 4/17-18/21
[3] WSJ, 5/3/21
[4] WSJ, 5/10/21
[5] WSJ, 5/3/21