{"id":1360,"date":"2011-10-12T12:30:37","date_gmt":"2011-10-12T10:30:37","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=1360"},"modified":"2011-10-12T12:30:37","modified_gmt":"2011-10-12T10:30:37","slug":"la-volatilidad-no-deja-ver-el-bosque","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/la-volatilidad-no-deja-ver-el-bosque\/","title":{"rendered":"You can\u2019t see the wood for the trees"},"content":{"rendered":"<p style=\"text-align: justify;\"><img fetchpriority=\"high\" decoding=\"async\" style=\"float: left;\" src=\"http:\/\/cnho.files.wordpress.com\/2010\/05\/arbol2.jpg\" alt=\"\" width=\"300\" height=\"200\" \/>\u2018Preserving in turbulent times\u2019 is not the title of this summer\u2019s soap opera, but rather the pressing need for all those who manage their own wealth. It is also one of the guiding principles for some wealth managers working on behalf of others, though unfortunately the latter tend to be more concerned with retaining their long-suffering clients commercially by reducing their\u00a0<strong>volatility<\/strong>, rather than preserving their assets and ensuring their sound long-term growth. Unfortunately, many managers of other people\u2019s money are more interested in today\u2019s bread (their own) and, in their short-sightedness, ignore tomorrow\u2019s hunger (that of their clients and also their own). This brings us back to the old debate as to whether one should only entrust one\u2019s money to advisers who have built up their own wealth and who co-invest with their clients, or whether any independent broker with sufficient technical training would suffice. But that is a discussion worthy of another article.<!--more--><\/p>\n<p style=\"text-align: justify;\">Returning to the subject of conservation in the current climate, here are a few gems from some veteran leading figures in the field:<\/p>\n<ul style=\"text-align: justify;\">\n<li>\u201cI don\u2019t think these are times for making money, but for fortifying oneself in order to survive,\u201d said Charles Stevenson, 64, Chairman of the hedge fund Navigator Group.<\/li>\n<li>\u201cI\u2019m not sure people have come to terms with the fact that we\u2019ve experienced a financial bubble\u201d \u2013 William Hambrecht, WR Hambrecht &amp; Co.<\/li>\n<li>\u201cWhilst the events of 2008 followed a predictable course, everything is now shrouded in uncertainty. There will be disappointment and disillusionment similar to that experienced by doctors, who, by choosing to study medicine, seemed to be guaranteeing themselves a path to wealth and social prestige. But that will no longer be the case in the future, and nothing will be as it was before.\u201d Frederick Lane, 62, Raymond James Financial Inc.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><img decoding=\"async\" class=\"alignleft\" src=\"http:\/\/sp3.fotolog.com\/photo\/51\/9\/74\/klestra\/1259957829894_f.jpg\" alt=\"\" width=\"405\" height=\"303\" \/>Focusing on the need to preserve wealth in this extremely complex \u2018New Normal\u2019 of insolvency and risk, I can tell you that 2011 is proving to be the most difficult year in terms of wealth management of all those I have experienced so far \u2013 and there have been quite a few\u2026 And by \u2018difficult\u2019, I do not mean that it is the year with the greatest losses in value \u2013 far from it \u2013 but rather the most complex to interpret and navigate, and one in which past experience and knowledge are less decisive. The New Normal is here to stay, taking the form of an extremely complex and vast minefield, and the sooner we learn to interpret and navigate this landscape, the better off we\u2019ll be.<\/p>\n<p style=\"text-align: justify;\">That said, it is important to draw a clear distinction between the concept of long-term heritage preservation and that of aversion to\u00a0<strong>volatility<\/strong> or potential short-term losses. Because in the new economic and financial normality we have been experiencing for more than four years now, the\u00a0<strong>volatility<\/strong> It is present in all investments with acceptable levels of risk that may prove attractive in the long term. Nowadays, the refusal to accept high levels of volatility condemns investors to withdraw from the equity markets and even the fixed-income markets, and\/or to the utter mediocrity of future growth. But what is worse is that it condemns them \u2013 with a few honourable exceptions in the form of absolute return funds (not marketed in Spain) \u2013 to assume risks of insolvency and all manner of other risks never seen before. This is the case for investors who consider themselves ultra-conservative yet continue to hold their investments in deposits and other guaranteed bank products, unaware of the tremendous risk they are taking on \u2013 and not just counterparty risk.<\/p>\n<p style=\"text-align: justify;\">Many investors, too, are looking for security and believe they can escape the\u00a0<strong>volatility<\/strong> by investing in property or unlisted companies. As if the fact that these investments are not quoted daily meant that their potential gains or losses in value remained unchanged. And they are unaware that if those properties or businesses in which they are partners or owners were listed on the stock exchange, their prices would have fallen as much, if not more, than certain excellent companies that are now trading at laughably low prices. The failure of property investment in Spain as a safe haven for wealth,\u00a0<a href=\"https:\/\/clusterfamilyoffice.com\/en\/blog\/?p=269\">We\u2019ve been warning about this for over four years now, and it just keeps going on and on\u2026.<\/a>. As for investments in unlisted companies \u2013 whether the family business itself or others \u2013 if the companies lose money and eat into the existing assets (of the company and the family), the failure of the strategy is evident. But if the company or companies in question are thriving businesses, a psychologically curious phenomenon occurs, contrary to the mindset with which they invest in the stock market. Namely, investors feel at ease and \u201csafe\u201d from capital losses, knowing their businesses are performing well, simply because of the absurd fact that Mr Market does not knock on their door every day to throw in their faces the price that supply and demand (the masses, the crowd, the crowd) has determined for their companies\u2019 shares. And it is not that they should worry about how their family businesses or holdings in unlisted companies would trade on a daily basis; quite the opposite, in fact.\u00a0<img decoding=\"async\" class=\"alignleft\" src=\"http:\/\/images.fineartamerica.com\/images-medium\/this-is-our-world--no1--forest-floor-morning-mist-bw-paul-w-sharpe-aka-wizard-of-wonders.jpg\" alt=\"\" width=\"404\" height=\"268\" \/>In other words, they should worry less about market valuations for their stock market investments and focus their attention instead on the soundness and quality of the businesses they are buying into when investing in those listed shares. In short, they should apply the same criteria they use when making investments as entrepreneurs in unlisted companies to their stock market investments as well. The Master, Ben Graham, put it perfectly:\u00a0<strong>Mr Market should be there to serve you, not to lecture you<\/strong>. Only in this way can our wealth grow properly in the long term. And only in this way will we stop being plagued by impulsive decisions, sleepless nights and panic attacks that will inevitably distort our decision-making.<\/p>\n<p style=\"text-align: justify;\">The million-dollar question at this stage is\u00a0<strong>How can we identify which shares to buy, at what prices, and when to sell them so that we can reinvest those assets? <\/strong>That\u2019s no big deal, is it? But the answer is as valuable as it is simple: we must entrust that task to the world\u2019s best fund managers. To identify, get to know and monitor them constantly and properly, we must carry out thorough, rigorous and expert work, or seek out advisers who specialise in this and can do it for us. And it is not enough to rely on independent advisers or intermediaries who merely prescribe portfolios made up of a selection of funds offered to them by the trading platform they work with \u2013 no. Among other reasons, this is because most of the leading players in the world of fund management are not even registered in Spain for distribution, with the tax penalties that this entails (taxation on imputed income, non-transferable funds, etc.). Consequently, investors also face the difficulty \u2013 or even the impossibility \u2013 of accessing these funds through the sales channels of Spanish financial institutions.<\/p>\n<p style=\"text-align: justify;\">But it must be stated loud and clear that there is a huge difference in quality between portfolios where the investment universe is limited to funds registered with the CNMV for sale in Spain, and those that invest freely in any fund worldwide, particularly in times as complex as these. For this reason, investment advice that goes beyond simply selecting funds available for sale in Spain and offers tax-efficient solutions to invest freely across the entire range of funds <span style=\"text-decoration: underline;\">from all over the world<\/span>, provides its clients with value that is infinitely greater than its cost. What good is it to an investor if their advisers or bankers prescribe mediocrity for free or even at a low price? Not just nothing \u2013 far worse. Because that low price turns into an extremely expensive service thrown down the drain, which will inevitably undermine the future growth of the family\u2019s wealth. And above all because it carries an opportunity cost infinitely greater than we imagine, as it condemns them, in most cases, to failing even to match the benchmark indices. That is why ETFs, which track these indices, have been so successful: in the kingdom of the blind, the one-eyed man is king. In other words, matching the performance of benchmark indices has become an unattainable luxury for most ordinary people advised by banks or independent financial advisers. <img loading=\"lazy\" decoding=\"async\" class=\"alignleft\" src=\"http:\/\/4.bp.blogspot.com\/-Uy2ze2Ogedw\/TdHMbG1QshI\/AAAAAAAAACs\/WYsm6pv9_Rw\/s1600\/Wallpapers_camino_en_el_bosque.jpg\" alt=\"\" width=\"415\" height=\"311\" \/>It goes without saying that the top-tier fund managers we referred to earlier have consistently and continuously outperformed their respective indices by a wide margin since their inception. And the compounding effect of this systematic outperformance of the markets will do the rest over time.<\/p>\n<p style=\"text-align: justify;\">Returning to the need to preserve our heritage in the current climate, and focusing on strategy and asset types, the guiding principle that will lead us to a successful outcome is the search for a concept that is already becoming scarce and is turning into a true treasure:\u00a0<strong>Solvency<\/strong>. In a heavily indebted world, where the credit crunch is wreaking havoc, and in which governments are adding virtual zeros to their debt in a desperate attempt to prevent the immediate collapse of the financial system, finding a sound investment where we do not run the risk of default or loss of principal in the long term is like finding an oasis in the middle of the desert. It should matter little to us whether we have to accept a high\u00a0<strong>volatility<\/strong> (who does not take them on in this \u2018New Normal\u2019, even in assets that are traditionally not very volatile) and\/or potential short-term losses. What is truly vital is that our investments are directed towards solvent companies and\/or governments, whether in fixed income or equities. And we should not be concerned with what Mr Market says those investments are worth in the short term if we have genuinely managed to buy solvent, expanding and very, very cheap businesses (no small feat). Traditional developed-world fixed income is now recklessly insolvent, and therefore useless and extremely dangerous as a safe haven for preserving capital. Due to the over-indebtedness of the developed world (of companies and governments), solvency has deserted them and retreated towards the\u00a0<strong>emerging markets fixed income<\/strong> and towards the\u00a0<strong>equity in excellent companies with no or very little debt<\/strong>. It is highly unlikely that we will find the \u2018treasure\u2019 known as solvency beyond these two types of assets. Investing in economies in recession and heavily indebted will be tantamount to suicide as soon as the credit crunch intensifies and refinancing \u2013 hitherto routine \u2013 dries up more and more, as is already happening in the Eurozone\u2019s financial system.\u00a0To put it in terms everyone can understand, we would say that we must view our investments in the stock market or even in (emerging market) fixed income from a 100% business perspective and a 0% stock market, speculative or whatever we wish to call it, perspective. Our investments in listed companies must follow exactly the same selection, investment and divestment criteria as our ventures into unlisted companies or private equity. The invaluable advantage we have in the stock market compared to our direct investments in unlisted companies is that, to buy listed shares, we can \u2013 indeed, we must \u2013 do so with the help of the world\u2019s leading experts through the best investment funds on the planet, which provide us with optimal analysis and diversification. And let us remember that, at this stage, we face two challenges that will determine the difference between success and failure in the long-term growth of our wealth:<\/p>\n<ol style=\"text-align: justify;\">\n<li>To obtain the best advice, which will always guide us towards the world\u2019s best fund managers suited to our financial and investment circumstances.<\/li>\n<li>To obtain the best advice that enables us to access the global investment landscape freely through legal, transparent and tax-efficient vehicles which are, of course, tailored to the family circumstances of each portfolio.<\/li>\n<\/ol>\n<p style=\"text-align: justify;\"><img loading=\"lazy\" decoding=\"async\" class=\"alignleft\" src=\"http:\/\/jootix.com\/upload\/DesktopWallpapers\/cache\/Forest-Road-in-Olympic-National-Park-forest-road-olympic-national-park--1920x1440.jpg\" alt=\"\" width=\"414\" height=\"308\" \/>We would like to conclude by emphasising once again that being able to invest in excellent, global businesses at exceptionally low prices, or in excellent businesses that are less global but located in countries with growing economies at P\/E ratios of less than 4 or even 3, is something so extraordinarily rare that we are unlikely to\u00a0<strong>see<\/strong> for the first time in many decades. But this is not just an opportunity to make a lot of money over the next 3, 5 or 10 years; we are convinced that this is the best way to preserve wealth through investments in <strong>solvency<\/strong> that we can find today. Would any investor with an entrepreneurial mindset (rather than a stock market or speculative one) pass up the opportunity to become a partner in these excellent businesses, which have growing annual profits of more than 25 or 30% of the company\u2019s total value? Would anyone refrain from investing in them at these P\/E ratios simply because of the possibility that, in the near future, the euro might blow up in our politicians\u2019 faces, triggering another panic-driven crash, and thereby allowing us to invest at an even more exceptionally high discount? Because we must not forget that this possibility may not materialise, and that those who tend to always wait for something to happen in the future before making decisions are, in reality, often hesitating due to the uncertainty of their own assessments and criteria, and their innate inability to make decisions in the present.<\/p>\n<p style=\"text-align: justify;\">We should pay very little heed to the short-term market valuation of our investments, whether they involve losses or spectacular bull runs. To determine the best investment and divestment strategies and manage a myriad of variables, we will have the world\u2019s finest fund managers working on our behalf. Our task (simple yet difficult and invaluable) must therefore be the constant monitoring of this elite group of fund managers, who will help us to become long-term partners in the world\u2019s finest and most financially sound businesses, and whose returns will consistently outperform the markets.<\/p>\n<p style=\"text-align: justify;\">Let\u2019s recall the brilliant quote from\u00a0<a href=\"http:\/\/es.wikipedia.org\/wiki\/S%C3%B8ren_Kierkegaard\" target=\"_blank\" rel=\"noopener\">Kierkegaard<\/a> \u201c<em>A single man may be wrong, but the crowd is always wrong.<\/em>\u201d And that, of course, applies to fund managers too. Let\u2019s not allow volatility, noise, uncertainty and panic to prevent us from seeing the wood for the trees. For the forest of the New Normal may be volatile, noisy, mysterious and full of dangers, but it is, after all, a lush and exciting forest, which, for those best advised, hides unimaginable treasures in its darkest corners.<\/p>","protected":false},"excerpt":{"rendered":"<p>Preservar en tiempos revueltos no es el t\u00edtulo del culebr\u00f3n del verano sino la necesidad imperiosa de todos los gestores del patrimonio propio. Tambi\u00e9n es una de las premisas de algunos gestores de patrimonio ajeno, pero \u00e9stos lamentablemente se suelen preocupar m\u00e1s por retener a sus sufridos clientes comercialmente reduci\u00e9ndoles la\u00a0volatilidad, que por preservar su [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[41,42,39,40,37,48,55],"tags":[],"class_list":["post-1360","post","type-post","status-publish","format-standard","hentry","category-economia-y-finanzas","category-estrategia","category-crear-mi-propio-family-offices","category-gestion-financiera","category-reflexion","category-asesoramiento-patrimonial-multi-family-office-crear-mi-propio-family-offices","category-necesito-un-family-office"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/1360","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=1360"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/1360\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=1360"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=1360"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=1360"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}