News Column

Five Financial Planners Offer Advice on Successful Investing

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By Jennifer Riley

March 2001 - In the unending search for enlightenment, investors will look just about anywhere for signs of how the market will do. The past year-and-a-half has been full of conflicting messages. While the National Football Conference’s St. Louis Rams won the 2000 Super Bowl (traditionally a harbinger of a bull market), just months later the market took a dive. Maybe the writing was on the wall, though, given last winter’s lower skirt hemlines (hemlines typically go up in a bull market).

Luckily, there are financial planners to take the guesswork out of investing. Five such professionals spoke with HISPANIC BUSINESS®, offering strategies, advice, and picks for successful investing.

Jesse A. Garza, Salomon Smith Barney, San Antonio

Catering to a clientele of U.S. Hispanic and Latin American professionals averaging 50 years of age, Mr. Garza tailors investment strategies to each client’s tolerance for risk while acknowledging that retirement may be just around the corner. His goal is to achieve a balance between cash, bonds, and equity with a long-term focus.

“Most of the planning we do is long-term in scope,” Mr. Garza says. “I make it a practice to meet regularly with my clients to rediversify their portfolios on the basis of changes in their lives, changes with the Fed, or changes with the companies. We’re constantly tweaking the portfolio, with a long-term focus. We do not react emotionally and change portfolios because of short-term events.”

Mr. Garza uses Salomon Smith Barney’s Stock Rating system as a risk yardstick when advising clients. According to that system, a low-risk stock with a buy rating from the company’s research department may see returns of 15 percent in 12 to 18 months. A medium-risk stock with a buy rating may see returns between 20 percent and 25 percent. And a high-risk stock with a buy rating may have greater than 25 percent returns. Of course, all of those returns have a corresponding potential for loss. For those who can stomach the risk, Salomon Smith Barney’s speculative stocks with buy ratings may see 30 percent returns (or losses). Venture stocks come with the chance of even greater gains or losses but would be implemented only in “extremely well-diversified portfolios,” according to Mr. Garza.

“There seems to be great risk attached to stocks,” he says. “You’re at the mercy of one company’s performance. A mutual fund diversifies the companies and the risks. There are bond funds, sector funds, industry funds to consider. At certain entry points, most portfolios under $100,000 are better suited for mutual funds by the mere fact that they offer diversity with the guidance of fund managers. Quite frankly, if you’re going to invest in stocks, you want to have a portfolio representative of 12 sectors. Many times that means having more than $100,000 to begin.”

Company policy prevents Mr. Garza from publicly endorsing mutual funds, but he says he looks to social themes to identify sectors and specific companies with good potential. He hasn’t given up on technology and communications, despite the sectors’ poor performance of late. The information superhighway, he says, will still be a driving force in the economy. With this in mind, he is bullish on technology and data-storage company EMC (NYSE: EMC). He sees increasing demand for the company’s data-storage systems (which are compatible with any computer operating system), given the global embrace of electronic data transmission.

A second theme on which he bases his investment strategy is the aging of America. He identifies Pfizer (NYSE: PFE) as a company well positioned to take advantage of this trend. Impotence drug Viagra, cholesterol drug Lipitor, and the antidepressant Zoloft are all Pfizer products – and each one has annual sales in excess of $1 billion.

Mr. Garza’s third investment theme focuses on the power of Generation Y – Americans born since 1983. He thinks Viacom (NYSE: VIA), through such vehicles as MTV, VH1, Nickelodeon, CBS, and Blockbuster, is well positioned to take advantage of the growing purchasing power of this youthful group.

Louis Barajas, president, Louis Barajas & Associates, Los Angeles

Like Mr. Garza, Louis Barajas advocates a long-term investment strategy. He tells of a client who recently withdrew his $70,000 from Barajas & Associates and, believing he could see higher returns faster, tried his hand at day trading. He lost it all almost overnight. While Mr. Barajas has sympathy for the unfortunate investor and would take him back as a client, he “can’t make anything rise from the ashes,” he says.

“As much as I’d love to play the home-run game, I don’t have a vision of what the market is going to do tomorrow,” the 18-year veteran of professional financial planning admits. “But I do have a vision of what [my client’s] family needs. The younger people are the ones who take the money and say they’ll hit the home run. That changes with time; the more experience they have, the less likely they are to invest for the short term.”

He warns his mostly Hispanic clientele of being lured by what he calls “investment pornography – what looks good on the outside but is not good for you. A lot of the investment media want to sell you what looks good, but it’s more sizzle than substance.” Substance, Mr. Barajas argues, comes through diversification and patience. He likes the diversification of mutual funds and often reminds investors that when the S&P is seeing 20 percent returns, some of those stocks are down. He espouses a buy-and-hold strategy akin to that of Berkshire Hathaway’s CEO Warren Buffett, whom he calls the most admired but least imitated investor.

The market’s downturns afford investors great opportunities to start or expand their investing – buy low, sell high, as the saying goes. Consequently, Mr. Barajas says his company raised more money in the last six months of 2000 than it did in the last three years combined. He thinks some of the best deals are in value funds, since they’ve underperformed lately. He likes several of the DFA funds. The DFA U.S. Large-Cap Value Fund saw its returns fall from 38.36 percent in 1995 to 4.32 percent in 2000.

Similarly, the DFA International Value Fund fell from 16.3 percent gains in 1999 to 5 percent losses in 2000. He attributes their poor performance to the move away from value investing: “These weren’t the chi-chi stocks and have been out of favor for several years,” he says, but he foresees real growth in the near future.

“I honestly believe that for the long term, you cannot beat a managed fund,” he says. “I use stock picking as what I call fringe investing. A client will give me $100,000; I’ll put $75,000 in managed funds. With the remaining $25,000, we’ll open a Schwab account for them where they can do their own picking with our help. When an investor wants to invest in a single stock, they’re going for a home run. That’s like those people who go to Vegas and lose a little bit every time but win occasionally. You hear about the wins, but you don’t hear about the losses. Those losses add up, and the wins rarely cover them.”

Davelva Perez, The MONY Group, Long Island

Working primarily with Hispanic clients between the ages of 20 and 50, Davelva Perez will employ an aggressive approach only on long-term investments of five or more years so that her clients can weather the market’s ups and downs. Ms. Perez has established four risk levels for her clientele: virtually risk-free 6 percent returns, 8 percent returns, 8-10 percent returns, and 12-14 percent returns.

“My clients definitely want to go a little more aggressive because they have the time – they’re planning for education and retirement, which are more long-term investments,” says Ms. Perez, who came to The MONY Group (part of Mutual of New York) last year from EuroMoney in London, where she worked with Latin American markets. While her outlook may seem conservative compared to that of Salomon Smith Barney’s Mr. Garza, most of Ms. Perez’s clients do not have as much money to invest and consequently have an overall greater aversion to risk.

She says that recent market instability has shaken her clients’ confidence, but that most are optimistic that the market will turn around. Like Messrs. Garza and Barajas, Ms. Perez pushes funds over stocks to give clients the necessary diversification to safeguard them from losses.

“I’m trying to concentrate on the family market,” she says. “So I shy away from investing in specific companies. When you invest in stocks for your clients, you have to constantly be doing research and be on top of the market. I don’t just want to make a profit today – I want to help my Hispanic families in terms of long-term goals like retirement and educational planning.”

Her favorites are (not surprisingly) the Mutual Group’s Enterprise Equity Fund and the Janus Growth and Income Fund. She also likes Oppenheimer’s funds. While she’s reduced her holdings of technology and large-cap funds in the short run, she expects a turnaround in the near future and plans to increase her clients’ allocations in those funds soon.

Javier Jimenez, Wedbush Morgan Securities, Los Angeles

Like Ms. Perez, Javier Jimenez advocates a relatively conservative investing strategy, telling clients that long-term returns above 10 percent should be considered a “bonus.” But like all financial advisors, he tries to get that bonus for his clients. While diversification should be key to any investor’s strategy, Mr. Jimenez says, it’s the most important safeguard for the conservative investor.

“For the conservative investor, I like to be well diversified – preferably in mutual funds,” Mr. Jimenez says. “Diversifying in growth and income makes me feel more comfortable in the long term. I always have to explain that we’re looking at the long run. With the more conservative clients, I like to have a dollar-cost average, meaning we invest regularly over a yearly period on a monthly basis. Let’s say $500 a month is put into their portfolio. Say we have a bad three, four, or five months. We’re still buying on a regular basis with the anticipation that in the long run we’ll be seeing all-time highs again.”

While he still preaches the virtues of diversification to his more aggressive investors, Mr. Jimenez employs two additional strategies to protect such investors from loss. The first is the stop-loss, which is an order to sell a stock or fund when it falls to a certain price below the current market price [Money Matters, September 2000]. As he explains, “You hate to hold on to a stock that’s volatile – you want to have in your mind a sell-and-buy discipline. A stop-loss already puts prices in your mind where you can tolerate selling it.”

The second strategy is to invest in old-economy stocks. In the recent bull market that was driven by overvalued technology stocks, this approach was seen as contrarian. But the strategy insulated many of Mr. Jimenez’s clients when the bottom fell out of Internet stocks. “We try to stay away from stocks that are in fashion. Stick to companies that are, in dollar value, a bit more valuable,” he advises.

One such non-technology company that Mr. Jimenez is bullish on is Home Depot (NYSE: HD). Although it fell from a $70 high to a $34 low last year, he still classifies the company as a very attractive buy since it continues to dominate its sector. With regard to value-based funds, he recommends Legg Mason Trust’s Growth and Income for the long term. He likes the fund managers’ contrarian approach to stock picking and credits them with “picking some good winners” and beating the S&P in the last seven years. He also sees small-cap funds as good deals right now. He points to the MFS New Discovery Small-Cap Fund for good medium-term potential.

But like his counterparts above, Mr. Jimenez has not lost faith in the technology sector. His favorite technology stock is Agilent. (NYSE: A). This spinoff from Hewlett-Packard tests instruments for technology and biotechnology. It went as high as $150 last March and as low as $38 in the months following technology’s decline. But Mr. Jimenez still considers Agilent a good investment because of its solid earnings and good growth potential.

Walter Pardo, McLaughlin, Piven, Vogel Securities, New York

Echoing the sentiments of Salomon Smith Barney’s Mr. Garza, Walter Pardo thinks the aging of the Baby Boomers and the Internet revolution will shape the economy, bringing science and technology, healthcare, and financial sectors to new highs in the near future.

In his 10 years at McLaughlin, Piven, Vogel Securities, Mr. Pardo has advocated a disciplined buy-and-hold strategy that takes into consideration each client’s time horizon. “Every stage of life demands a different consideration. Let’s take me, for example. I’m in my 30s and have a long-term horizon for most of my investments. My main objective year-to-year for my portfolio (as well as those of clients in a similar stage of life) is to outperform the relative market indexes when the market is going up and not decrease as much as the indexes during market downturns. This can be accomplished by a buy-and-hold strategy and by using well-managed mutual funds that have historically beaten the S&P 500.”

He advises risk-averse clients to expect 7 percent returns, medium-risk clients to expect 10 percent returns, and risk-tolerant clients to expect returns between 12 and 13 percent. But regardless of how much risk an investor is willing to tolerate, investing “is not a sprint; it’s a marathon,” Mr. Pardo reminds his clients.

“The market has seen wars, political upheavals, the fall of the Berlin Wall – and through all those events, the long-term investors have prospered,” he says. “My job is to remind my clients that they have to stay focused on the big picture – whether it’s retirement in 25 years, kids going to college in seven years, or a down payment on a home.”

In line with his long-term strategy, Mr. Pardo recommends Putnam New Opportunities, a growth fund that “has been around the block, with flexibility on the size of the companies it buys.” In other words, it is not limited to large-cap or small-cap stocks. He also recommends Pioneer Fund, touting it as “one of the oldest value funds, with a conservative strategy and consistent returns year in and year out.”

Mr. Pardo also points to large-cap fund Touchstone Growth/Value as a well-managed fund that focuses on companies hand-picked by the fund manager for impressive records of achievement. (There are only 50 companies in the fund.) Munder Framlington Healthcare, a 5-star (Morningstar Rating) sector fund, covers “the mid-cap biotech and healthcare sectors that have been on fire as of late and is a great way to invest in this aggressive sector.” Two other sector funds he recommends are Davis Financial Fund, for its “great management and above-average returns,” and Alliance Technology – “It’s been around longer than most tech funds and has seen ups and downs in the market but has maintained a conservative allocation.”

Perhaps it goes without saying, but just in case, Mr. Pardo prefaces discussions of investment strategy with the following disclaimer: “No one can guarantee any rate of return, and past performance is no guarantee of future results.” Investment strategy, after all, is simply a tool with which to play the game. But it remains a better basis for investment decisions than football games, skirt hemlines, and Hollywood trends.

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