The financial services industry continues to move to a passive style of investment management. Passive investing is all about asset allocation, index investing, and staying the course no matter what is happening in the world. I call it the dumbing down of the industry.

Passive management enables big firms to standardize their investing process so that even a brand-new advisor without any experience in the industry can create a flashy plan for you. All a newbie needs to do is plug in a client’s age and basic financial position, and the computer spits out a “custom” asset allocation that only changes with the client’s age over time.

The advisor then moves on to the next prospect and does not have to worry about managing the portfolio at all. The computer does the rest. The computer software automatically rebalances the asset allocation on a regular basis. This re-balancing is mostly based on the age of the client.  This robotic style of money management allows the advisor to sell, sell, sell, and not have to worry about what is going on the world.

The big mega firm is then able to collect fees on these robotically managed portfolios, as long as you stay with them. The advisor does not have to worry about the economy, monetary policy, fiscal policy, sector rotation, recessions, or bear markets. He or she just needs to manage the relationship, find more of these relationships and let the robots do the rest.

How is the wife?

How are the kids?

How is your golf game?

During my over two decades in the industry I have witnessed two major bear markets that many investors never recovered from. In the 2001-2003 bear we learned that valuation matters a lot. The technology stocks were so overvalued at that time that it took the Nasdaq 15 years to recover its 79% loss.

In 2007-2009 we learned to beware of what Wall Street is selling. Their packaged goods being sold by passive advisors almost destroyed the financial sector and the economy. Were it not for taxpayer bailouts, many of these mega advisory firms would not be around today.

Now they have embarked on the passive wave of investing and you want to trust them this time around? We will see how it works when the next bear market hits. Today’s world is anything but passive. Global debt continues to pile up as governments spend, spend, spend, and the taxpayers foot the bill.

We will have another recession. We will have another bear market, and you want to remain passive? What about that 401-k that you contributed to all your life. You are planning to live on it. You watched it get clobbered in 2001 and again in 2008. The next bear market could even be worse.

I have learned over the years that you can’t have the offense on the field all the time. Good teams also have a good defense.

When the economy is expanding and earnings are growing, you must have the best offensive team on the field that you can assemble. Not SOGGY (Stodgy Old Growth Stocks of Yesteryear), but Best Stocks Now. Technology is changing rapidly. The Medical Sector is innovating all the time. The habits of the consumer are undergoing a radical change.

Companies are being disrupted by disruptors all the time. You want to own the disruptors, not the disrupted. This is where careful stock selection comes in. When you look at an index like the Russell 2000, there are really only about 40-50 Best Stocks Now candidates.

These stocks are growing at a much faster rate than their peers and they still makes sense from a value point of view. That is the formula behind Best Stocks Now. They must have momentum and value. This really narrows down a very large field.

Best Stocks Now come in all shapes and sizes. Some are Emerging Growth Stocks that are hoping to grow up to be major players in their industry someday. Others are Ultra Growth stocks that have passed the emerging growth stage and are now growing very rapidly. These companies want to be large-cap companies when they grow up.

Others have reached that Premier Growth Status. They have grown up to become the best large-cap stocks in the world. They dominate their industries and have disrupted many non-innovators along the way. They must continue to grow and make sense from a valuation point of view, however.

At some point however, even these dominant large-cap growth stocks begin to slow down, however. Mathematics and gravity eventually catch up with them and earnings growth begins to decelerate as new Premier Growth stocks begin to replace them. Many of these stocks that are beginning to slow down start paying a dividend.

Dividend payers come in all shape and sizes also. Many have become non-growth stocks and only offer a dividend. There is very little earnings growth left in the tank. I avoid these stocks like the plague. I want dividend paying stocks that are still growing their earnings and their dividends.

When the economy begins to grind to a halt, and market earnings begin to top out, it is time to give the offense a rest and get the defense ready. It is time to protect the harvest that has been garnered over the year as best as possible.

Having a line in the sand on all your holdings is a big part of active management. This is important during good times in the market and especially when the economy and the market begin to head south. As sells continue to trigger, cash accumulates in your account.

This cash can be put to work in individual bonds which can do well during a downturn in the economy, especially if you hold these bonds until maturity.

Inverse ETF’s an also be employed as the weakest links in the market begin to emerge. In 2001 it was the high-flying tech sector that came unraveled. In 2008 it was the financial sector that imploded. Today, there are inverse funds on just about any asset class, index, or sector. Not only can they be used as hedges, but they can be very profitable on the way down.

Eventually the whole economic cycle bottoms out and repeats itself all over again. No two economic cycles are alike. No two bull markets are alike. No two bear markets alike, and no two investors are like. We all have different risk profiles, time horizons and financial objective.

One size does not fit all.

We have developed eight different portfolios that range from very aggressive to very, very conservative. You can mix or match, but we will recommend the best fit that is tailored to your needs.

Gunderson Capital is a fee-only based money management company. We charge a flat fee based upon how much money in aggregate that you have invested with us.

RATE SCHEDULE:

$1M+ aggregate money under management=1% annual fee
$500k-$750k=1.25%
$250k-$500k=1.5%
Under $250k=2.0%
Our minimum is $100k.

Fees are collected at the beginning of each quarter. They are paid in advance of the services offered. If you come during the quarter, fees are pro-rated.

If you leave during the quarter, you will receive a pro-rated refund on un-used fees.

The only other fee that money management clients pay are Ameritrade’s current trading costs of $6.95 per trade.

Bill Gunderson is the money manager of all the equity portfolios, with Paul Carlson assisting. Bill has 22 years of experience as a professional money manager.

Paul Carlson is the manager of our Individual Bond Fund with Bill Gunderson as co-manager. Paul has 30 years of experience in the industry. You can click here to learn more about their backgrounds.

We also offer retirement planning services. Call us for a quote on your personalized retirement plan.

OUR CUSTODIAN:

We currently use Ameritrade as our custodian for all domestic accounts. We use Interactive Brokers for foreign accounts. Ameritrade acts as the custodian of your funds. Gunderson Capital Mgt. only has limited power of attorney to buy and sell in your account, and collect our quarterly fees.