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12 Market-Beating Investment Strategies

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
February 21, 2012

IN THIS ISSUE:

1.  A Message From Our Sponsor

2.  All of Our AdvisorLink® Programs Have Beaten the Market

3.  And They’ve Beaten the Market With a LOT Less Risk

4.  The Numbers Don't Lie, So Why Not Join Us?

5.  Getting Started is Easier Than You Think

6.  Why You Should Make a Change Now

Introduction

In case you didn’t notice, the S&P 500 Index hit a milestone last week. It reached the point where it had gained 100% from the lows of 2009. While the S&P 500 is still well below its all-time high above 1500 recorded back in late 2007, many investors interpreted last week’s strength as a sign of “happy days are here again” in the stock market.

Last week the S&P 500 Index also broke above 1350, a key resistance level and remained above it at the end of the week. This is important because over the past 13 years, the S&P 500 Index has crossed this important threshold six times, but has yet to remain above it and go on toward regaining its October 2007 peak value above 1500.

While all of this may appear to be good news for the market, there are many investors who are not considering this to be the perfect time to enter the market, but are doing just the opposite.  Investors have endured two major bear markets within a decade, and many have decided that if the stock market ever gets back near what they had at the peak, they will cash out and walk away from stocks forever, or at least that’s what they say.

While I can certainly sympathize with the buy-and-hold investor who has been on the scariest roller coaster ride imaginable since the turn of the century, there are few alternatives to place their money in once they get out of stocks. Savings accounts and money markets pay little interest and bonds are sometimes just as volatile as the stocks they are leaving behind.

There are, however, actively managed investment programs with the potential to provide solid long-term opportunities for those who seek alternatives to the terrifying losses so common in traditional buy-and-hold stock market strategies promoted by Wall Street and the big mutual fund families. This week, I want to revisit these programs with you.  Why? Because every one of the AdvisorLink® programs I recommend has beaten the S&P 500 Index since their various inception dates and all with significantly less risk (as measured by drawdowns).

Unfortunately, most investors don’t think of risk management until after they have lost a significant part of their money. If you have a buy-and-hold strategy and are thinking of making a change, I would argue that NOW is the time for you to consider actively managed strategies.  Even if you’re happy with your current portfolio, now may be an excellent time to consider diversifying your portfolio into active strategies.

A Message From Our Sponsor

We depart today from our usual menu of topics as I reflect on something I'm very proud of regarding my investment business (i.e. - my real job). As regular readers know, I am in the business of finding successful money managers and recommending them to my clients all across the country. Today we have nine independent money managers who offer 12 actively managed strategies that my firm recommends, and I am pleased to report that every one of them has outperformed the S&P 500 Index since their inception. Of course, there are no guarantees that future results will be similar.

If that doesn't pique your interest, I don't know what will. But I'm getting ahead of myself. As regular readers also know, I am not a big fan of Wall Street's mantra that the best approach to successful investing is "buy-and-hold" for the long-term, and be willing to ride out gut-wrenching losses along the way. This old strategy dealt losses of 40-50% or more to millions of investors in the bear market of late 2007-early 2009.

I admittedly don't have the strongest stomach for riding out severe market losses, and for years studies have shown that most investors don't either. So for over 15 years, my company has been on a mission to find independent professional money managers that have strategies to reduce the downside losses of being in the market. Frankly, the only way to avoid big losses during bear markets is to get out of the market from time to time (or being able to hedge long positions).

Wall Street brokerage firms and the big mutual fund families tell you that it is not possible to "time the market." Well, I'm here to tell you that they are WRONG - what else is new? While successful active managers are hard to find, they do indeed exist. Over the last 15+ years with a lot of hard work and money spent, I have found an impressive group of successful tactical asset managers and offer them to investors through our AdvisorLink® Program.

All of Our AdvisorLink® Programs Have Beaten the Market

It always gives me pleasure when I’m able to prove the mainstream conventional wisdom wrong, and this is certainly no exception. As noted above, Halbert Wealth Management recommends nine successful professional money managers. I would like you to take a look at the table just below, and you will see that every one of them has outperformed the S&P 500 Index since their inception.

The performance shown below is real, not hypothetical, and is net of all fees and expenses since the inception of the programs. The following track records range from just over six years to more than 17 years of actual trading experience. Take a look please.

AdvisorLink Program Returns

And They’ve Beaten the Market With a LOT Less Risk

If I do say so myself, it is quite a feat to sponsor a dozen professionally managed investment programs that all beat the S&P 500 from their inceptions, but that's not even half the story! These programs beat the S&P 500 Index with a LOT LESS RISK along the way (as measured by drawdowns). In the bear market of 2008-early 2009, the S&P 500 Index lost just over 50%. Take a look at the worst losses incurred by the money managers I recommend since their inception - again, these are actual numbers. This is the real story!

AdvisorLink Program Drawdowns

There are some money managers, and even some individual investors, who have beaten the S&P 500 Index over certain periods of time. But I would challenge you to name any that have outperformed the S&P 500 Index AND did so with much less downside risk along the way. The numbers speak for themselves.

Controlling the losing periods - "drawdowns" - as we call them, is the most important element of successful investing in my opinion. Yet Wall Street firms and the big mutual fund families argue to the contrary and preach that if you can ride out the gut-wrenching downturns, it will pay off over time. Maybe so, but millions of investors couldn't stand the heat in 2008-early 2009 and bailed out near the bottom - and never got back in. That is really sad.

My overarching philosophy has always been that avoiding huge losses is the first priority, and it's not rocket science why I have long held this view. Put simply, the greater the loss, the harder it is to recover. The following chart demonstrates this in spades; this is why I reprint it frequently.

Drawdown Break-Even Chart

I have made it my career goal to seek out professional money managers that, above all, have delivered on the goal of limiting losses. Not only have all 12 actively managed investment programs I recommend beaten the S&P 500 since their inceptions, they all have done so with a lot less downside risk along the way.

The Numbers Don't Lie, So Why Not Join Us?

Since I began writing this E-Letter almost a decade ago, it has always been a mystery to me why more of my readers didn't take advantage of the investment programs I recommend. Goodness knows, we spend a lot of money every year searching for truly successful money managers. And regular readers know that I have my own money invested in EVERY program I recommend. I always put my own money in before I suggest that you do.

We know that most of our readers are intelligent, high net worth individuals who have investments. Maybe most of them are in that small, rare bunch that has beaten the S&P 500 on their own. I hope so, but the historical studies on investment behavior suggest otherwise.

It may also be an issue of short-term performance. Obviously, no management strategy is going to do well in every market environment, including those that I recommend. Over shorter periods of time, they may underperform the market periodically.  This is why I’m showing you the long-term results from the inception of each program. Investing is a marathon and not a sprint, so the best results are those viewed over extended periods of time encompassing multiple market cycles.

If you are happy with your investment returns, then congratulations to you! But if you are not satisfied, it is almost certainly because you have incurred some big losses along the way. As you can see in the tables above, my team of recommended Advisors has outperformed the market averages and has done so with much lower drawdowns along the way. This is a formula for success - no guarantees of course.

Getting Started is Easier Than You Think

Here’s how a new client relationship begins. Typically, the new person has been referred to us by a friend or relative. The first step is a phone conversation with one of my Investment Consultants (who are salaried, not on commission) to determine which of our recommended programs may be suitable for them.

Once the manager(s) has been determined, paperwork to open an account is sent to the new client. The account(s) is in the new client’s name and is held at a major custodian (such as Fidelity, Rydex, TD Ameritrade, Trust Company of America, etc.).

The money manager selected is given authority to buy and sell securities within the new client’s account. There is 100% transparency with the activity in the account. The custodians noted above all provide online access to the account. Likewise, the account can be closed at any time – there are no lockups or required holding periods.

The manager charges an annual management fee (usually 1.75% - 2.5%) which is deducted from the account, usually on a quarterly basis, and the client can see these fee transactions as well. The manager then shares a portion of that fee with Halbert Wealth Management on an ongoing basis for referring the new client and for ongoing management of the relationship. (Note: all of the performance numbers we provide are NET of all fees and expenses.)

At my company, we track every program we recommend on a daily basis. We can do that because I have my own money invested in every program we offer. And we stay in close contact with all of the money managers we recommend.

Account minimums vary among the various money managers in our stable. They range from as little as $25,000 to up to $250,000, depending upon the type of program offered.

On a final note, some readers are reluctant to invest with us because they live in some other part of the country than Texas, where we are located. Frankly, that is not a problem. We have clients in almost every state in the nation, and we have never met most of them in person. Don’t let the fact that you live somewhere else keep you from participating in these risk-managed strategies!

Most important, if you become a client, I will always take your phone call if you ask for me, or call you back promptly if I am on the phone or out of the office. I am always happy to talk to a client!

Why You Should Make a Change Now

By now, I hope I have convinced you that the traditional buy-and-hold approach to investing may not be appropriate for your entire portfolio. And that avoiding big drawdowns should be at the foundation of your overall investment strategy. But now I would like to take a moment to tell you an inside story that I think you’ll appreciate.

Let me tell you about how and when most investors come to us for help. Many new clients come to us, unfortunately, when the markets are down and they have experienced losses, often big losses. They typically say, “That’s it, I can’t do this anymore, put my money with your professional Advisors who have done much better than I have.”

Candidly, the ideal times to consider the actively-managed programs we recommend are times like TODAY, when the markets are strong. Think about it, the S&P 500 Index has risen 100% since the bottom in early March of 2009. That’s a double in less than three years! It’s precisely at times like these when you need to diversify with professionals that have the flexibility to move to defensive positions if the major trend reverses.

There’s a reason why every professional manager we recommend has outperformed the S&P 500 Index since their inception. We select them very carefully. For all these reasons, I invite you to consider the actively-managed, S&P 500 Index-beating programs I’ve shown you today.

If you would like more information about the actively managed investment programs offered through Halbert Wealth Management, feel free to contact us in any of the following ways:

Wishing you smaller drawdowns,

Gary D. Halbert

** Please read important disclosures below.

IMPORTANT NOTES:  Halbert Wealth Management, Inc. (HWM) and all the Advisors shown are registered with the SEC and/or their respective states.  This report does not constitute a solicitation to residents of any jurisdiction where the programs mentioned may not be available.  Information in this report is taken from sources believed to be reliable but its accuracy cannot be guaranteed.  Please consult a competent professional and each program’s disclosure documents before making any investment decisions.  HWM receives compensation from the Advisors shown in exchange for introducing client accounts.  For more information on HWM or any of the Advisors shown, please consult their respective Form ADV Part 2, available at no charge upon request.    Officers, employees and affiliates of HWM may have investments managed by Advisors discussed herein and others.

When reviewing past performance records, it is important to note that different accounts, even though they are traded using the same strategy, can have varying results.  The reasons for this include: i) the period of time in which the accounts are active; ii) the timing of contributions and withdrawals; iii) the account size; iv) the minimum investment requirements and/or withdrawal restrictions; and v) the rate of brokerage commissions and transaction fees charged.  In addition, all programs shown (i) involve risk; (ii) may have volatile performance; (iii) could result in the loss of all or a substantial amount of the amount invested; (iv) have a single advisor which could mean lack of diversification and consequently higher risk; and (v) have fees and expenses (if any) that reduce an investor’s trading profits, or increase any trading losses.

As a benchmark for comparison, the Standard & Poor’s 500 Stock Index (which includes interest and dividends) represents an unmanaged, passive buy-and-hold approach.  The volatility and investment characteristics of this Index may differ materially (more or less) from that of these programs, and this Index cannot be invested in directly.  The performance of this Index is not meant to imply that investors should consider an investment in these actively managed programs as comparable to an investment in the “blue chip” stocks that comprise the S&P 500 Stock Index. Statistics for "Worst Drawdown" are calculated at month end.  Drawdowns within the month may have been greater.  The returns reflect the reinvestment of interest income and dividend income.  Annualized returns take into account compounding of earnings over the course of an investment’s track record. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic or market conditions.

Select Advisors Conservative and Moderate: Historical performance data is provided by Schreiner Capital Management, Inc. (“SCM”) and from July 2009 to present, it represents composites of all fully discretionary accounts, including accounts that are no longer with the firm, that are allocated in a range of equity investments with a view towards capital appreciation.  SCM maintains a complete list and description of composites, which is available upon request.  Returns are net of fees, calculated using an accrual method by taking 1/12th of each account’s assigned annual management fee and subtracting that from the gross performance of each account.  SCM’s composite policy is to remove accounts from the composite that changed their investment strategy and to remove closed accounts.  The removal of such accounts occurs at the beginning of the month in which it occurred and the account re-enters the applicable composite at the beginning of the month that follows.  Prior to July 2009, the performance numbers represent actual tracking accounts monitored by SCM, but do not reflect the performance of an actual SCM client account.  This performance reflects the deduction of a model investment management fee of 2.5% which is the highest fee charged by SCM.  The model fee was calculated quarterly and based on the average daily account balance for the previous quarter, and assessed on the first day of the next quarter.  Actual investment management fees vary by individual account, but generally range between 1.9% and 2.5% of the value of assets under management.

Howard Capital RYX-PSR: Historical performance data represents actual implementation of the strategy calculated monthly.  From October 1, 2002, to July 31, 2005, Howard Capital Management, Inc. (“HCM”) managed one account trading at Rydex and AIM Funds using the RYX-PSR strategy.  Following the imposition of trading restrictions by AIM, performance is presented using one account trading only Rydex Funds from 8/1/2005 to 5/13/2008.  From 5/14/2008 to present, returns are calculated using representative client accounts held at FOLIOfn.  Representative accounts are accounts managed solely with the RYX-PSR strategy that have no additional deposits, withdrawals or other transactions during the month.   The results are net of advisory fees of 2.2%, paid quarterly in advance and are not net of custodial fees (if any).   

Metropolitan Tactical Moderate and Tactical Growth: The Tactical Moderate Composite and the Tactical Growth Composite were created on May 1, 2007.  Prior to January 1, 2011, the composites were named Fact Funds Tactical Moderate Composite and Fact Funds Tactical Growth Composite, respectively.  Prior to May 2007, the composites consisted of a single account in each program related to one of the firm’s principals whose investment objective and philosophy were similar.  The composites do not unfairly inflate performance returns.  Prior to January 1, 2009, the Tactical Moderate Composite contained a minimal amount of uncovered options that were immaterial to the performance of that composite.  

Metropolitan Capital Strategies, LLC (“MCS”) claims compliance with the Global Investment Performance Standards (GIPS) and performance numbers have been prepared and presented in compliance with the GIPS standards and verified by Cohen Fund Audit Services for the period from May 1, 2007 through May 31, 2008, and by Ashland Partners & Co., LLP from the period June 1, 2008 through December 31, 2010.  Verification assesses whether (1) the firm has complied with all the composite construction requirements of GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with GIPS standards.  The composites have been examined for the periods May 1, 2007 through March 31, 2011.  Prior to May 1, 2007, the performance numbers are not independently verified to be in compliance with GIPS.

Niemann Equity Plus and Risk Managed: Performance results are presented net of transaction costs and Niemann’s actual management fees.  Additionally, mutual funds (including exchange traded funds and variable annuities collectively referred to as “Funds”) charge various fees, all of which are disclosed in the Funds’ prospectuses, along with potential trading restrictions.   Such fees are borne by shareholders and are reflected in the net asset values of the Funds.  Some Funds also charge short-term redemption fees and excess transaction fees (Special Fees) that are billed to shareholders at the time of the event causing the fee.  Clients pay these fees in addition to Niemann’s advisory fees.  In selecting Funds in which to invest client assets, Niemann considers the nature and size of the fees charged by the Funds.  Consequently, Niemann may select Funds with higher or lower fees than similar Funds, and that charge Special Fees.  When deciding whether to liquidate a Fund position, Niemann will take into consideration any Special Fees that the Fund may charge.  Niemann may decide to sell a Fund position even though it will result in the client being required to pay Special Fees.  

Potomac Guardian: Potomac’s performance results are based on a representative account.  The representative account is an actual account that is considered representative of the majority of client accounts with similar investment objectives.  Returns for the representative account are time-weighted, total returns.  While the returns shown here are not GIPS compliant, GIPS returns are available from 2002 forward, upon request.

Sojourn Columbus High Yield: Historical performance data from October 2002 through December 2005 represents a track record compiled by MoniResearch, an independent corporation, Steve Shellans, President.  It is based on the signals provided by Sojourn, is net of 2.5% annual fees, with no sales charges assessed.  (The track record has been adjusted to show the deduction of fees quarterly rather than monthly.)  Performance from January 2006 forward reflects the return of a representative account in Purcell Advisory Services Columbus High-Yield Bond Program.  The representative account has the maximum fee (2.5%) withdrawn, has been in the strategy for no less than two consecutive months with no withdrawals, distributions or additions.  Should the representative account fail to meet the criteria, another account that complies with the requirements will be substituted.

Wellesley Convertible Bond: For all years up to and including 2009, this presentation reflects only the convertible securities portion of Wellesley Investment Advisors (“WIA's”) client accounts.  Returns are based on all securities held in accounts of all WIA clients and the Miller Convertible Fund during the periods reflected.  Actual client accounts may include positions other than convertible securities.  Such other positions are not included in this performance presentation.  Accordingly, the actual return of WIA client accounts is different, in some cases substantially, from the performance information presented for convertible securities.    

WIA's convertible returns during this period have been calculated using the following methodology.  Such methodology includes several assumptions that results from systems limitations on aggregating the convertible security portion of multiple client account.  Returns do not reflect transaction costs. The security’s market value on the last day of the month is determined as is the weight of each security in the portfolio (individual security value/total security value).  Each security's return for the month is calculated (monthly interest earned plus/minus monthly price change).  It was assumed that the security entered the portfolio on the first day of the month in which it was first purchased.  When a security is completely sold out of a portfolio, the prior month-end value is adjusted to reflect the final sales price. Each security's return for the month was weighted by the security's weight in the portfolio.  The security’s weighted returns for the month were summed to get the portfolio's return for the month.  These numbers were compounded to calculate the annual returns.

For all years starting in 2010 and after, performance numbers were calculated in accordance with Global Investment Performance Standards (GIPS).  The monthly returns are size-weighted average returns and are compounded to calculate annual returns.  These performance numbers have not been audited yet and are therefore not GIPS compliant.  Performance numbers include all accounts valued at least $250,000 and consisted of only cash and/or registered convertible securities.  Accounts with 144A non-registered bonds were not included in this presentation. Performance measurement for clients generally began on the last day of the month the account had at least $250,000 of value, consisting of only cash and/or registered convertible bonds.  However, clients who started with less than $250,000 were included in this presentation once the total account value of their cash and registered convertible bonds maintained a level of greater than $250,000 for 6 months.  Performance measurement for clients generally ended on the first day of the month in which the client account either terminated or held managed positions other than cash and registered convertible bonds.   Clients whose account started with at least $250,000 of cash and registered convertible bonds were excluded from the presentation once their total value of cash and registered convertible bonds remained below $250,000 for 6 months.   

Hg Capital Long/Short Govt. Bond: Historical performance data from 2007 to present represents a representative account managed by Purcell, in the Purcell Dynamic US Government Bond program.  The representative account selected has the maximum fee withdrawn (2.5%) has been in the strategy for no less than 2 consecutive months with no withdrawals, distributions or additions.  Should the representative account fail to meet the criteria, another account that complies with the requirements will be substituted.  It is  net of all transaction and custodial fees. Performance prior to 2007 is provided by Purcell and represents an actual account in a program named Hg Capital 199Hg-TYX, custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC.   Their numbers have been adjusted for Purcell's annual fee of 2.5%.  These results reflect actual trades in a proprietary account of the Advisor, managed to mimic the Advisor’s trading signals.  Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in the Program.    The signals are provided and generated by Hg Capital Advisors.

Scotia Growth S&P Plus: Historical performance data represents an actual account in the program named Scotia Partners Growth S&P Plus custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC through July 2008.  (Note: Due to the familial and professional relationship between the former principal owner of Theta Research, Paul Montgomery, and the principal owner of Scotia Partners, Cliff Montgomery, there is a conflict of interest between these two firms.)  These results reflect actual trades in a proprietary account of the Advisor, managed to mimic the Advisor’s trading signals.  From August 2008 forward, the numbers are from a representative account in the program.  The representative account selected has management fees of 2.5% withdrawn and has been in the strategy for no less than 2 consecutive months with no withdrawals, distributions or additions.  Should the representative account fail to meet the criteria, another account that complies with the requirements will be substituted.

See individual Profiles for complete descriptions and more detailed disclosures for each of the programs.

 


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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. 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 Gary D. Halbert (or another 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 investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. 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.

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