FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
February 11, 2020

A Better Alternative To Index Funds & Buy-And-Hold

IN THIS ISSUE:

1. Reintroducing YCG Investments

2. YCG’s Founders & Principals

3. YCG’s Stock Selection Strategy

4. Why You Should Consider YCG Now

Overview

If you have read my work for long, you know that I periodically encourage my readers to consider the actively managed investment strategies we recommend at Halbert Wealth Management. These strategies are typically managed by seasoned professionals who have a time-tested system for making the investments they do and managing them as market conditions dictate.

However, we also know from reader surveys over the years that many of my subscribers embrace a “buy-and-hold” approach to their stock and bond investments. In some cases, my readers do their own stock and bond selection, or as has increasingly been the case in recent years, they buy so-called “index funds” that replicate the returns of various market benchmarks.

Today’s E-Letter is targeted at those of you who fall into the buy-and-hold and/or index fund category. The reason is that we have one particular money manager in our stable of Advisors that specializes in buying undervalued stocks and holding them for indefinite periods of time, depending on their performance and whether better opportunities present themselves.

I want to bring this particular manager to the attention of those of you in the buy-and-hold/index fund category because this firm has a history of losing less and recovering faster during the big drops in the stock market, as I will illustrate as we go along. This is a big advantage for several reasons I will point out below.

The reason I am devoting this issue of Forecasts & Trends to this particular Advisor is because we all know there will be another big drop in the market. The only question is when. What I would like you to do is read my description of this very successful money manager below, and then seriously consider using them to manage a portion of your buy-and-hold/index fund holdings.

Reintroducing YCG Investments’
"Concentrated Composite Strategy"

YCG Investments is a SEC registered Investment Advisor located here in Austin, Texas. We first recommended YCG to our clients and readers in 2010. That was also when I made my first personal investment with the firm (as I do with all the money managers we recommend).

As you might expect, we have been very pleased with YCG’s performance over the years.  Since its investing inception in late 2008, YCG’s Concentrated Composite Strategy has outperformed the S&P 500 Index by a comfortable margin (net of all management fees and expenses). It substantially outperformed the S&P 500 last year when stocks gained over 30%. As always, past performance is no guarantee of future results.

You can see YCG’s actual performance results in the YCG FACT SHEET. There you will see that since its inception, YCG experienced only one losing year (-3.02%). Even with that modest losing year, you can see that YCG’s performance has been quite impressive.

What we like most about YCG’s performance is it has a history of losing less than the S&P 500 Index during significant market drawdowns of 10% or more, as you will also see in the FACT SHEET. In addition, you’ll see that YCG tends to recover faster than the market does.

YCG’s Founders & Principals

YCG was founded in late 2007 by Brian Yacktman who is the Chief Investment Officer & Portfolio Manager. Prior to founding YCG, Brian was an Associate at Yacktman Asset Management, the adviser to The Yacktman Funds. Brian joined the firm in June 2004 from Brigham Young University where he graduated cum laude with a B.S. in economics and an M.B.A. with an emphasis in finance.

Co-founding YCG in 2007 was Will Kruger who serves as the Chief Executive Officer and a Principal of the firm. Will left the Private Banking & Investment Group at Merrill Lynch where he co-managed $1.3 billion in discretionary assets for high net worth individuals, endowments and private foundations.

In 2012, Brian and Will were joined by Elliott Savage who serves as a Portfolio Manager and a Principal of the firm. Before joining YCG, Elliott was an analyst at a multi-billion dollar long/short equity hedge fund in Dallas, Texas. Before that he was an investment banker at Salomon Smith Barney in New York.

As you can see, the founders and principals of YCG have a wealth of knowledge and experience in researching stocks and valuations. I must say that these gentlemen and their staff are among the most dedicated professionals I have been around, and they are committed to delivering the very best they can for their clients.

YCG’s Stock Selection Strategy

YCG believes that average investor’s get-rich-quick mentality and stock-picking overconfidence cause them to gravitate towards riskier stocks, whereas high-quality stocks tend to be left behind and perpetually underpriced relative to their dominance and predictability. YCG primarily invests in these high-quality but undervalued companies that they deem to have enduring pricing power and long-term volume growth opportunities that are managed by ownership-minded executives and are conservatively capitalized.

After winnowing the investment universe down to companies that fit their criteria, which they like to refer to as “global champions,” YCG conducts further research and due diligence to estimate their risk-adjusted forward rates of returns.  YCG then constructs a portfolio of stocks they believe will be robust in various economic outcomes. Portfolios typically include 15-30 individual stocks.

While YCG’s Concentrated Composite Strategy qualifies as a buy-and-hold investment, they do make changes in the portfolio from time to time, especially when holdings go from undervalued to overvalued or when better opportunities present themselves.

Why You Should Consider YCG Now?

As I warned in my January 21 E-Letter, a recent FORBES survey found that only 4% of investors responding believe there is any chance the stock markets will go down this year. That is simply amazing – and scary! Markets almost always move in the opposite direction from what the crowd expects, especially when it’s this lopsided, as I explained in that January 21 Letter.

There are numerous things happening in the world that I believe could negatively affect stocks this year. And with US equities as overvalued as they are, a correction could well be severe. In addition to market factors, there are other potentially negative surprises which can show up without warning – take the recent coronavirus scare which sent markets sharply lower.

Keep in mind that in the last two bear markets in 2000-01 and 2008-09, the S&P 500 Index plunged 49% and 51%, respectively. Some investors believe that if you lose 50%, you have to make 50% to breakeven. That’s not true! To recover from a 50% loss, you have to make 100% to break even. Just as important, it can take years to recover from such losses, if ever.

Studies of investor behavior over many years has consistently shown that individual investors who pick their own stocks or mutual funds tend to significantly underperform the market indexes. Due to their emotions, many investors have a tendency to buy when the markets are strong and confidence is high, and to sell when markets are falling. The Dalbar Studies are one such example that I have written about for years.

The bottom line is that if you are investing in a buy-and-hold strategy or index funds, you have to know that your equity holdings will get hammered in the next serious market correction or bear market. And you also have to know that it’s not a matter of if but when.

If so, I strongly encourage you to consider moving a portion of your equity allocation to YCG Investments ASAP. And here’s the best part: YCG requires a minimum investment of $1 million for a managed account; however, because of our longstanding relationship, Halbert Wealth clients can invest for as little as $100,000. I have no idea how long this deal will last!

So, if you are the least bit interested in YCG, you need to give us a call today at 800-348-3601 and speak to one of our non-commissioned Investment Consultants – Phil Denney or Spencer Wright, both of whom have been with me for over 20 years.

In closing and in the spirit of full disclosure, I was never a fan of buy-and-hold as a strategy. To me, it was not a strategy since you are totally at the will of the markets. But when I saw how YCG approaches stock market investing by buying clearly undervalued stocks, I became a believer and invested my own money. I’m very pleased and believe you will be, too.

YCG Webinar on February 19 at 4:00 PM EST

On Thursday February 19 at 4:00 PM EST, we will host a live webinar with YCG’s founder Brian Yacktman and Co-Portfolio Manager Elliott Savage who will discuss in detail how their investment strategy works. Following their presentation, they will take questions from listeners.

I highly recommend that you register for this free webinar today and mark your calendar. In case you can’t make it live, we will have a recorded version of the webinar available afterward.  If you register for the webinar, we will automatically send you the recorded version. This will be a great opportunity to hear from YCG’s founder and ask any questions you may have.

Wishing you profits,

Gary D. Halbert

 

Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.