Avalon Asset Management Company is an investment advisor providing Separately Managed Accounts for clients. Each client receives individualized attention to his or her investment goals and portfolios.
Investment Management Solutions
The Investment Process
Avalon uses its own fundamental research, based upon financial and business analysis of economic trends, individual companies and their corporate results, filings and presentations. Original data is used wherever possible. Third-party research available from brokers or major investment banks is sometimes used to augment information flow, though it is not used as the basis of investment decisions. Valuation is the foundation of the selection process.
Management for the Long Term
It takes discipline, experience, stamina and considerable analytical work to know when to invest in a market that is attractively valued, however unpopular, and when to be wary of the seemingly invincibly popular market that is running on momentum and dreams. An old saying long attributed to the Rothschild banking dynasty is that one should “buy on the sound of cannons” (i.e., war and similar disasters) and “sell on the sound of trumpets” (victory). A long-standing irony of investing is that most people instinctively do the opposite.
The average investor often says that his or her biggest concern is avoiding serious losses, which is quite understandable in light of the last decade. Experience, however, suggests that human nature is otherwise. What really aggrieves people is the feeling that “everyone else” is making more money. It could even be just one person close to them. Whether it’s tech stocks, real estate, or subprime mortgage bonds, the sensation of being left out is what overwhelms good judgment and leads to the most expensive mistakes – like buying on the sound of the trumpets.
One of my jobs as a portfolio and risk manager at times is to take away the keys when the party is still going strong. That doesn’t always make me beloved, but it’s my job to protect your capital. No one can time the exact tops and bottoms, but it is human nature to try to do so. Americans like to compete. They want to get the best price every time. Yet long-term investing success is about building good values and letting go of rich ones, rather than trying to pick the perfect price.
Safety and Preservation of Capital
In the long run, the stock market reflects the real economy and rewards intelligent investing, but in the short run, stock prices can be little more than the madness of crowds. The two crashes we’ve had in the last decade are ample demonstration of this fact.
My first concern is to protect your capital. The goal of long-term capital appreciation and preservation isn’t achieved by trying to chase every trend in the market. Managing to beat the market every quarter is a recipe for long-term underperformance.
Contrary to popular images in the media (and the questions people usually ask when they find out what I do), investment success isn’t about finding hot stock picks and then triumphantly cashing them out at the cashier’s cage. That’s for the movies. The most important element of long-term wealth creation is to avoid big drawdowns, or significant decreases in capital.
Making up a 5% loss isn’t hard, and even 10% losses can often be made up in a matter of a few months. However, 20%-30% losses are another story. The simple arithmetic of a 30% loss is that it takes a near-50% gain to make it back. The task is made more difficult by the reality that most investors are unable to take the pain any more after such declines, and exit near the bottom instead of investing.
There are times to invest aggressively, but they are generally not the time when everything seems to be on a roll and the media fills up with stories of easy money and overnight millionaires. Catching a bubble is as much luck as anything else, particularly when it comes to timing the exit. Unless you are very lucky, it isn’t more rewarding than investing when valuations have gone bust, and far more dangerous.
Customized Investments for your Financial Goals and Dreams
I want to help you meet your financial goals and achieve your dreams, whether it’s wealth accumulation, long-term retirement planning, college education, refinancing your home or deciding whether to invest in your brother-in-law’s startup. Every family and investor is unique.
Most money is invested with firms that are too large and bureaucratic to move quickly or against the crowd. The investment management community tends to cluster around a few themes: If everyone else is recommending emerging market equities, chances are your advisor will too. Partly it’s because of the pressure to conform within the investment community, particularly at large firms, and partly it’s for reasons of professional safety – if it ends badly, your client is less likely to fire you if everyone else was doing it. When something bad happens, your cookie-cutter portfolio will be part of it.
At Avalon, I invest for you only. There are no business conflicts. No investment committees to position you for enduring mediocrity. Large firms like to talk about the depth of their team, but as a large-firm survivor, I can tell you that the best returns come from the best individual managers, not committees.
Markets never stay the same. Within the last five decades, every asset class – be it equities, bonds, precious metals or other commodities – has had periods of being undervalued and overvalued. It isn’t a static world. The next investing decade never ends up being like the last one. Big firms adjust slowly. Good managers adjust quickly.
Many investors and families are now counting on fixed-income investments and bonds to safely navigate them to retirement. I regret to say that they are going to be severely disillusioned. The era of bond out-performance is literally in its last days. It’s quite possible that 2012 will be the last year that bonds generate a positive real return for the rest of the decade.
If you would like a copy of Avalon Asset Management Company’s brochure, please send your request to info@AvalonAssetMgmt.com or call 617-892-4192.
Avalon Asset Management Company is based in Lexington, Massachusetts. M. Kevin Flynn, CFA, is the President of Avalon Asset Management Company and is a Registered Investment Advisor in the Commonwealth of Massachusetts.