Another Good Quarter



The Market

The stock market had another good quarter with the S&P 500 Index up 10.6%, the Dow up 11.9%, the S&P Mid Cap Index up 13.5%, and the Russell 2000 Index (small cap) up 12.4%. Value stocks outperformed growth stocks in the first quarter. Commodities and commodity stocks did not fare well. The Intermediate U.S. Government/Credit Index was up 0.3%. As you know, we recommended increasing stock exposure from 40% to 60% and reducing fixed income by 20% at the first of the year. We are currently recommending alternatives to fixed income.

Asset Allocation

Investment News is marketed as “The Leading Information Source for Financial Advisors.” An article in the April 15, 2013 edition of Investment News is titled “Tactical strategies gain, as buy and hold fades.” The article features a big red circle saying “45%, The percentage of advisors surveyed by Cerulli Associates who say they are applying tactical strategies.” The article attributes this shift from buy and hold to the 2008 crisis. Cerulli surveyed 10,000 advisors to come up with this percentage. In its 2009 survey tactical strategies didn’t even register among respondents. I suspect that buy and hold may work best going forward.

Monroe Vos has been employing tactical/dynamic asset allocation since 2000. We lowered equity exposure in 2000 resulting in excellent returns during the tech bubble years of 2001-2002. We also lowered equity exposure twice in 2008: once in July and again in October. These tactical moves resulted in much smaller losses in 2008 than if we had stayed the course like most others did.

We have over the last twelve years added alternative asset classes to the model portfolio, like Emerging Market Debt, Commodities, Energy/Natural Resources and MLPs. We are now recommending Private Real Estate and Private Equity as fixed income alternatives. We believe that to be successful when employing tactical/dynamic asset allocation, the timing of these moves is imperative. Not short term, but intermediate term. Our record shows that we have been able to do this effectively over the last twelve years. We currently have developed a presentation book titled “Alternative Asset Class Analysis” which is available this quarter. This Analysis shows what alternatives we like now and those we don’t like and why.


One of our clients keeps asking a very good question. He keeps asking me why our portfolio is doing so well while the other foundations whose boards he sits on are not. The other foundations have prominent firms advising them with well-educated and attractive, articulate individuals representing the firms. These are firms like Goldman Sachs, Morgan Stanley, Merrill Lynch, UBS and large consulting firms from around the country. He is frustrated because these are large institutions with many resources. The people went to the best schools and excelled academically. They are the “type of young men you would want your daughter to marry.”

To many the answer would probably be complicated. To me it is very simple. At one point in my career I was a commercial lending officer at the only AAA rated bank in the country, and it was the 20th largest bank in the country. I lent money to Wal-Mart, Dillard’s Department Stores, Temple Eastex/Time, Inc. and many other public companies in the Southwest. I was successful in gaining many new clients for the bank while others were not. I remember David Glass, the CFO of Wal- Mart at the time, telling me that he had never met a banker like me. That was just before my bank became the Texas bank for Wal-Mart. What David meant was that I cared about finding a way for my bank to lend Wal-Mart a substantial amount of money on terms that were not only attractive for the bank, but for Wal-Mart as well. I asked him what he needed to grow Wal-Mart and what terms he could live with. I wanted Wal-Mart to succeed so that it could pay the bank back and so that the bank could make a “reasonable” return on the loans.

The answer is that at Monroe Vos we spend a huge amount of time thinking about how to make our clients rich/richer rather than how to make ourselves rich/richer. The measure of success for those that work for these large organizations is how much revenue they generate for their firms, not how much they make their clients. That’s how they get promoted through the ranks of their companies. That’s what their salaries and annual bonuses are based on. That’s the way it is and the way it has always been. At Monroe Vos we measure how well our clients are doing. That is the only measurement that matters. With large financial institutions there is no client-advisor goal alignment, only institution-advisor alignment.

Recently Barron’s came out with its “Annual Top 100 Financial Advisors” list. These are supposedly the best advisors in the industry according to Barron’s. When investigating what criteria is used to rank these advisors, you will find that there are three: (1) the advisor cannot have any regulatory violations; (2) the amount of assets he/she advises; and (3) the amount of revenue the advisor generates for his/her firm. That’s it. No goal alignment with their clients.

One other thing. Talent can be found in many places. In larger firms and small firms. At Monroe Vos we have talented, hard-working and experienced professionals who believe that the harder we work for our clients the more successful their investment experience will be and the more successful Monroe Vos will be.


Once again I am attaching the “Quarterly Review and Outlook” from Hoisington Investment Management Company of Austin, Texas. Van Hoisington and Lacy Hunt, Ph.D. are two of the smartest guys I have known in the investment industry. The only thing we don’t agree on is investing in long dated Treasuries. They do, we don’t.

You will see that they explain that the Federal Reserve is not printing money to increase the money supply (M2), yet commentators in the industry keep saying they are. They explain velocity of money and why we are not experiencing inflation.

They explain that, “bad things happen when government debt exceeds 100% of GDP.” They discuss whether deflation is a continuing risk or not.


We continue to believe that the U.S. stock market is a good investment going forward. The housing market is improving, we are experiencing growth, and we are in good shape relative to the rest of the world. Even though the GDP growth rate is around 2% and earnings are not growing as fast as they have, we believe that multiple expansion of P/E ratios is possible.

Please take a look at our new website

Jamison Monroe
Chairman & CEO