So the thing I want to talk to you about today is whether you have a hundred million dollars or a hundred dollars, this exercise for this weekend’s going to be very, very valuable. So I want you to pay attention when you are facing the type of market environment that we’re in each and every day. And you’re trying to manage your own expectations, never mind those of your clients. You want to have a plan and the plan let’s start like this. How much of your existing capital are you willing to have at risk at any given time next week, given the market environment, the fancy term for that is called portfolio heat. And it’s a good measure of the overall risk in your portfolio.
This helps you understand with your clients, what you have at risk at any given point. You, of course, you need to use stops so that you can kind of better manage risk. You can’t really guarantee stuff, but you want to be able to speak with people and say, Hey, we only have 2% of the overall capital at risk before we get stopped out on everything. Now some of the buy and hold stuff are like, Hey, you can’t time the markets. You’re going to just asset allocate. So yeah, you’re going to market get cuts in half, gets cut in half. Again. You could be down 20 to 40%. That’s a real conversation that you want to have with your clients. Don’t don’t not talk about it because you hope it doesn’t happen. You know, you’re supposed to be the boss of the account. So pick up the phone and call the client and say, Hey, I just want you to know, given our current trajectory, given our investments, okay, here’s what could happen.
Sure. We could recover. But the probability of that in the short run is small. And if the Fed keeps tightening, like they likely can, like they’ve signaled. So then this way you become more of a partner with the client and explain to them that these are dicey times because helping them preserve capital is important. And they say, well where are we going to sell? You’re going to sell. Well, as soon as support is broken or as soon as the instrument falls further, here’s where we should get out. Then they’re going to probably say something completely stupid, like well Warren Buffett said he never met a rich technician, which of course is a bold faced lie. And it also shows a gross misunderstanding of what technical analysis can do for you. And that is to play superior defense. You’re not just looking at stars going. Yeah, I’m going to bet on Orion this weekend, you’re knowing and you’re saying, okay, where are the sellers in control? And after which point I’m going to puke out my position because at that point I’m wrong and it’s okay to be wrong. It’s just not okay to stay wrong.
But then you’re on the same page with the client when you describe what the drawdowns are. And I want you to do that both in a dollar value and as a percentage by each name and then at the portfolio level. Now when you have that conversation with the client, it’s great because now there’s no surprises. You’ve earned your keep. Instead of just trying to explain away the day, which is a complete f*cking snooze, like why’d the market go down? Oh my God, there’s all this drama with the Fed and this and that. And this is how people are like, don’t be in that business because that’s reactive mode. Be proactive, be in control right now. I admit some people might not feel comfortable doing that, but what are you getting paid for to come up with excuses of why the market’s down or are you being proactive and being the fiduciary on the account, someone’s have to be the boss. And I can assure you when it’s me and somebody else, the boss is me. You can’t let these people push you around. But if you don’t take action and you don’t earn your seat at the table, don’t be surprised when they leave.
Because that’s what happens in these types of mark markets, labor migrates. And that means you’ll see account ACAT transfer papers coming across your desk. And they’re not going to give you any warning. You’re going to come in on a Monday and you’re going to see the name of the account. But the account balance is zero. Why? Because they left. They were tired of hearing excuses and not your excuses of why you lost money. But if you’re not proactive, you’re not telling them anything that they can’t get from watching TV or going to Yahoo Finance. If they’re more sophisticated, they’re probably reading Baron’s or The Economist, or at least some of the newspapers that would have some financial information. I don’t know that they’re actually good. So I’m not endorsing them, but that would include WSJ, Investor Business Daily. The New York Times is a JV newspaper when it comes to business reporting.
But at any rate, those are my thoughts for the day. It’s very, very good practice for those of you that are running money for a management fee and making sure that you’re in partnership with your clients, as opposed to trying to justify what’s happening after the fact that’ll put you in a very different light in the client’s eyes. So when they get twinges of not being happy, at least they won’t blame it on you. And that’s important because it’s hard enough to get the money under management in the first place. So what’s the old saying. They think it’s like how many times harder is it to get a new account than to just maintain an existing account? So keep that in mind as you’re going through your daily iterations with your clients and make sure that the actions that you’re taking are not just sitting there fielding incoming calls from clients, be proactive and put the ball in their court. So at least they know they’re part of the choice. That’s empowering.
This is a computer generated transcript.
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