Earlier this week David Ballard spoke with a friend who offers an interesting perspective on the current market situation. For 30+ years Cynthia Prince-Fox was a professional portfolio manager at Waddell & Reed Financial, Inc., managing billions of dollars for our investors. She retired several years ago and now lives in Montana. Cynthia went from making day-to-day decisions about which stocks and bonds to buy, sell or hold, to being a retiree who has a portfolio of securities that she entrusts to former colleagues. She is, essentially, just like the rest of us. The following excerpt of our conversation will hopefully be informative and helpful, it certainly was helpful for me!
Dave: Cynthia, thanks for sharing some of your thoughts during this historic time. Considering your life change to retirement, examining your portfolio must feel very different. What is the biggest difference for you as you consider your portfolio from the perspective of a portfolio manager to a retiree?
Cynthia: Thanks Dave. I think the biggest difference is information flow. When I was managing money, we had real-time access to so much information in digestible pieces versus my retirement vantage of simply relying on the news. The news media is more interested in capturing headlines versus digging deep into the real issues. Most of that information is, frankly, not helpful for investors.
Dave: So where did you get your information and how were you able to assimilate all the information that is out there? Seems like it would be overwhelming.
Cynthia: We relied mostly on our own in-house resources and our own research. Our portfolio managers, analysts, economist and risk manager would meet every morning before the markets were open. We would discuss what had happened over night in foreign markets and currencies and get edited explanations behind those moves. We would hear reports on the fixed-income markets, both high-grade and high-yield. We would discuss market moves, specifically why they move in a particular direction and what the likely next move may be. We heard reports from analysts about earnings on specific stocks, what companies are doing in specific environments, and data points that would provide insight to us as we considered our strategy going forward. It was very collaborative, and we were able to work together as a sounding board to talk through ideas. We were tested and challenged, and our work was often enhanced by this process.
Dave: Thanks for sharing some of what happens in a day in the life of a portfolio manager. I was able to sit in on several of those meetings at the home office in Kansas City, was humbled by the experience and impressed by the amount of information shared and collective wisdom gathered in one room. Obviously, you trust professional money managers. Can you share some additional thoughts as to why you think active management is important, especially given our current market environment?
Cynthia: Sure. I think it’s so important today to not simply own a basket of stocks. You simply don’t want to just own everything. For instance, retail is being impacted by social distancing - but not all retailers, and not in the same way. There will be winners and losers. Technology is another area where that will be impacted as people are working remotely and meeting over different virtual platforms so there is opportunity. It’s critical to know what you own and why you own it. I remember in the dot-com era that investors who owned passive strategies became overexposed to tech and really had no understanding just how overexposed they had become.
Dave: Can you expand on that thought?
Cynthia: Sure. Active managers seek to differentiate all the different dynamics that are happening each and every day. They are on the front lines on behalf of their investors trying to digest all of the information and data points, process that information, take a step back and then act accordingly. When I was managing money, especially in volatile markets, I tried to focus on not being in stocks that exposed my investors to the most risk and to try and focus on how people and companies are going to change on the other side of the event that’s causing the volatility. I believe the collaborative process I was involved with enabled me to be better equipped to make good decisions, I just don’t believe that any one individual can process all the complexity and information on their own.
Dave: Do you have any final suggestions to investors as they are seeing their portfolios impacted?
Cynthia: Just to be clear, I am not really any different than anyone else when it comes to market volatility. It can be unnerving to watch portfolio values drop. I have been through calamities like this before, however, and I believe that if you are in a well-structured portfolio that reflects your overall financial plan and risk attitudes then you should be better positioned to weather these storms.
I know that sitting in front of the TV or tuning in to every “breaking news” alert doesn’t help me. I don’t think it will help you or investors. I try to find ways to stay in touch with what is happening in our rapidly changing world, but I am also careful that I don’t allow myself to be a prisoner to moment by moment news feeds. We all know that “breaking news” is not always breaking news. I am not suggesting that you completely disconnect. Check in - and then shut it down.
Dave: Cynthia, I appreciate your willingness to share some insights with me today. Enjoy your week and stay safe.
Cynthia: Thanks Dave. My pleasure.
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The opinions expressed are not meant to predict or project the future performance of any investment product. The opinions are current as of March 2020, are subject to change at any time based on market and other current conditions. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.
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