Years ago I was managing money at DLJ. In 1999, when I was in my early to mid-thirties, I felt that I did not understand valuations. So, I fired myself and hired independent managers to replace me for my clients. The reality was that I was influenced by the dotcom hype and my judgement became skewed. This was fortuitous as many of the tech holdings were sold in February of 2000 and I launched myself into the consulting business of finding managers with process.
Fast forward to 2008, Granite Group was 4 years old, the market was moving up and one of our prestigious Wall Street clients called to change his allocation to more equities. He was a very conservative gentlemen, who’s returns were very good, but wanted to be in more aggressive asset classes. We told him that it was not a good idea because of valuations and that it did not fit his risk profile. We reluctantly agreed and of course the markets moved down 40% in short order.
Today with the market valuations moving up, many people are calling to change allocations, but in addition want more aggressive managers. It is not just one or two, but many. Sound familiar? Markets historically run 7-8 year cycles and they run hot and sometimes they are stone cold. With high valuations (not market price) and many clients calling to be much more aggressive than normal, it tends to give us pause to reflect on life’s lessons: have an investment and allocation process and stick to it.