The Approach to Wise Investing

George M. Motz
President and Chief Investment Officer
Melhado, Flynn & Associates, Inc.

nvesting in the equity and fixed income markets carries with it a degree of risk even in the best of times. In the fixed income markets the risk is largely limited to the quality of the issue, the current interest rate environment and the length of time to maturity. In the equity markets, the risks are far more varied as, of course, are the rewards.

The selection of an investment vehicle suitable to your needs is extremely complex, much more so than is commonly portrayed in media advertising which focuses more on relatively small savings in execution costs rather than on helping you to focus on what may be the best choice of investment for you and why. Clearly, the building of an investment portfolio is a very personal thing and therefore not suited for a cookie cutter approach. What’s good for the goose may well be poison for the gander.

Our approach is to individualize every portfolio after extensive work sessions designed to elicit frank discussions of goals and objectives. Stage of life, current income needs, risk tolerance, etc. simply cannot be assumed or covered in one perfunctory session. Once the ground rules have been established and the comfort level is high on both sides, a successful investment strategy can be implemented.

Current market conditions always play an important part in any investment strategy. A look at today’s market is a perfect case in point. The economy has been growing at a rate of around 4% per year a level traditionally considered to be close to ideal; not too fast to lead to high inflation yet not too slow to risk a slide into recession. Interest rates are rising but from near historically low levels to levels today which are not consistent with stifling economic expansion. Inflation has been rising particularly in the commodity markets yet all important labor costs, normally the inflationary culprit remain at very reasonable levels. Corporate profits are strong and growing and many companies show cash on their balance sheets at or near record levels.

In spite of all of these positives, the stock market seems extremely reluctant to accept this apparent good news at face value and indeed has declined in value since the start of the year. Clearly the focus of the markets is on other perhaps less obvious issues and just as clearly, the market is controlled more than ever, at least at this juncture, by “fast money”, i.e., short-term traders, hedge funds and the like. This makes it tougher to see the trees in the forest and is as good a reason as any to seek guidance from those whose daily focus is on the markets and who have the experience to identify true value.