When Cash is King: Managing Cash to Mitigate Risk (Part 1)

In 1970, Warren Buffett opened a family safety deposit box to discover a letter from his grandfather and $1,000 cash. The letter, written to Buffett’s uncle on his 10th wedding anniversary, extolled the virtues of ready cash, explaining, “Over a period of a good many years I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash.”

Trading Day: A Behind the Scenes Look at Implementation

In our Market Notebook, we often share information when we make policy changes, explaining the What (the allocation change), the When and the Why (the reasons behind the rebalance), but we have never explained the How: the behind the scenes mechanics that go into an allocation change. Though Balentine is not a Broker Dealer, each time a policy change is enacted, portfolio implementation considerations play a central role. Implementation is one of the key components of investment management and though often overlooked or misunderstood, implementation has important implications for our clients’ portfolios.

Weathering the Storm: Investing in an Uncertain Environment

In the weeks since Washington increased the debt limit, the markets have been a roller coaster ride. Continued fallout from the political debacle of early August and disappointing data from housing, manufacturing and employment sectors have all come together to create the perfect storm for a double dip recession. At Balentine, we have spent the last 18 months preparing portfolios for such an event and are positioned to weather the storm, by including protection from a sustained low interest rate environment, the threat of inflation and the economic struggles of the developed world.

The Upside of Down Markets

Balentine’s approach to investment management is a “risk-first” approach that some may see as defensive, contrarian and even sometimes counter-intuitive. But it is built specifically for periods like this: when markets have given up entire yearly gains in a matter of days. Our considerable investments in assets outside of the United States and our emphasis on hedge strategies, commodities and market-neutral investments means that our clients’ portfolios are better positioned to weather the storm.

Mitigating Risks Through Liquidity Management

If you’re lucky enough to win the Powerball lottery, you will have to decide if you’ll collect the prize money in one lump sum or in uniform payments over time. You have to choose between a smaller guaranteed payout and a potentially larger, but less certain, outcome. Many pension fund managers face a similar quandary when assessing how to invest portfolio assets: accept certain payoffs in the future for known costs today, or risk a potential shortfall tomorrow for less cost today.

Managing Risk and Building Portfolios in a Post-Crisis Market

Volatility, both experienced and expected, is but one consideration when evaluating an investment decision. Traditional investment advisors have tended to build portfolios around the potential returns available from asset classes. This approach overlooks the risk side of the equation. At Balentine we have categorized investments by a multitude of risk factors, liquidity, active vs. passive, and income potential; this is the building block approach to portfolio design. The idea is to establish the risk parameters first and then construct a set of investments that provide the greatest reward for the risks borne.

When Buying Stocks, It’s Not All Relative!

Today, the US stock market is about 30% overvalued relative to the most reliable predictor of future long-term returns: the cyclically adjusted PE (price-to-earnings) ratio. It is prudent therefore to plan for a more subdued inflation-adjusted rate of return from stocks from January 2011’s starting point and to diversify your wealth into asset classes and strategies beyond stocks and bonds, even if it is likely that stocks are going to outperform bonds in a rising interest and inflation rate environment.

Risk Management and Muni Bonds

Risk is a component of almost every aspect of human life. In some situations, risks are relatively minor and have potentially little impact. In other, more serious situations, risk can pose dangers to life and livelihood.