The HFH Way and two newspaper articles

There were two articles in the papers this past weekend (Jan 18) that have a lot, in my opinion, in common. They also address the investment philosophy of HFH Planning Inc.

Jason Zweig starts his article with “Nowhere to run, nowhere to hide – – and no one to get unbiased advice from.”

One was Zweig’s column talking with a man, Dean LeBaron, who made millions founding Batterymarch Financial, an investment firm, before selling it to Legg Mason in 1995 for over $90 million in today’s value. First he suggests that one must look to those areas that did not ride the tide that raised all stock areas in 2013 and second to invest for safety. The “invest for safety” is a favorite of people who have been in the markets and have enough money that even a very small income from those investments is enough to live a life style they choose. Ross Perot was a famous advocate of investing only in Treasury Bills. But the other he mentions is developing markets plus China, Gold, Real Estate and Inflation Protected Bonds (TIPs). We don’t like the Chinese market because of government control of the companies and the lack of transparency. We are not investing in TIPs because inflation adjustment only adds to the principal after six months and the interest is very low

The second article, in the New York Times by Nobel winner in economics, Robert J. Schiller, talks about how he believes that investing is controlled by the irrational behavior of human beings and that the markets cannot be predicted. That view is in opposition to a fellow Nobel winner, Eugene F. Fama, who believes that research is the answer.

At HFH Planning, we walk a line between these different views. First, we believe that asset allocation designed for the individual takes into account the amount of risk to which that individual should be exposed. The more time to retirement the more risk one may take.

Next we choose mutual fund managers who have, over an extended period of time, shown the ability to choose investments that do well.

Third we analyze returns on a quarterly time frame to examine the results of the allocation we’ve chosen and do an asset rebalancing. That rebalancing adds money to areas that have underperformed by taking money from the areas that performed extremely well. The procedure means we miss out on some of the upside. We are willing to accept that loss of potential in order to protect the gains from the exuberant “bubble” and the damaging fall that follows. Safety first.

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