TEXT OF INTERVIEW
Tess Vigeland: It's almost like you can smell the fear. Watching the stock market from day to day, which, of course, is what we advise not to do. But it's hard to avoid the disturbing sight of the Dow bouncing up and down like a rubber ball. And the sound of wildly divergent opinions about how the economy's doing. This economist says we're headed for a double-dip recession. That one says Europe is about to implode. Do I get out? Do I jump in?
For some perspective, we're going to hear today from three money managers with very different strategies. We start with Barry Ritholtz, CEO and director of equity research for Fusion IQ.
I asked how much money he's overseeing right now.
Barry Ritholtz: We are running a little over $300 million, and it's primarily high net-worth and institutional money.
Vigeland: Now, how have the recent swings on Wall Street affected you allocations and why?
Ritholtz: We started Q-2 of this year had 70 percent cash, and on May 5, we moved to 100 percent cash. And since that time, have gone to a position that's about 25-percent long, 75-percent cash. When we looked at each other around May 1 and said, "Hey, this is a good year if we stop right now. And the market is starting to look really dicey. Let's step away and let the cloud clear before we make the next allocation decision."
Vigeland: How are your clients reacting to your decisions, just say, in the last two or three months?
Ritholtz: Every time we make a major tilt that's a little bit contrarian, we'll get a bunch of e-mails and a bunch of phone calls -- "Why are you guys carrying so much cash? We're not paying you a fee to sit in cash!" We had one client actually, be nice enough to say, "Hey, I had this nasty e-mail written and I was about to send it, and the next day the market dropped 1,000 points. And I thought, maybe I should just keep my mouth shut." We love clients like that.
Vigeland: What's your advice to the average investor of the best way to react?
Ritholtz: Number one, you should never react; you should always be proactive. The time to read that little card that tells you where the emergency exit and the oxygen masks are on the plane is not when the wings are falling off and you're plummeting into the ocean -- it's when you're sitting on the tarmac and you have the opportunity to sit and read it for a moment. So, the best thing for the average individual to do is to dollar-cost average into indexes, have it come right out of your paycheck and don't even look at it. Just forget about it. Emotions are the enemy of investors, and humans are full of emotions.
Vigeland: Barry Ritholtz of Fusion IQ. Next we hear from DeeAnn Greibel, a Wells Fargo financial advisor. Her typical client is a far cry from Ritholtz's.
DeeAnn Greibel: Middle America; somebody that's in their 60s, 70s or 80s; that has worked very hard; saved money methodically and has anywhere from half a million to $2 million in assets that built up.
Vigeland: How much money are you managing?
Greibel: About $275 million.
Vigeland: Now, how have the recent swings on Wall Street been affecting your decisions on allocations and why?
Greibel: Because of my belief in what's driving the world's economy, i.e. there's been too much debt, right now, I'm positioning investors on a one-to-one discussion. Many of them are about 20 percent in cash; there are about 20 percent in short-term, fixed-income investments; there are about 15 percent in gold; maybe 15 percent in ownership of companies that own hard assets.
Vigeland: It seems that there's a lot of discussion these days about what's going on in Europe. There are questions about whether we're going to have a double-dip recession, people are looking at 1,000-point drop on the Dow in, what, the last month or two. And there's just a lot of uncertainty out there. Can you give us a sense of what your advice is to the average investor for the best way to deal with this kind of situation?
Greibel: Well, they need to stay flexible. They need to force themselves to entertain investment ideas that they would not have thought they'd ever need to entertain, like owning something like gold. Owning hard assets, such as an oil stock, instead of maybe a retail stock. But it's very important people not get outside of their comfort zones. This is not the time to take anything for granted.
Vigeland: So caution is your watch word.
Greibel: Yes, and being very deliberate in your decision making.
Vigeland: Financial advisor DeeAnn Greibel. And finally, on the opposite end of the spectrum, Tim Call. He's chief investment officer for The Capital Management Corporation. He manages $225 million and says 98 to 100 percent of his clients' money is in the stock market.
Tim Call: Because we believe bonds will underperform in the periods ahead as inflation returns to a more normal level of 3 or 4 percent. Twenty and 30-year bonds should underperform greatly. So we'd rather be in stocks in that environment.
Vigeland: I wonder, though, whether your clients, as they watch the news and all this market volatility, are they second guessing any of what you're doing?
Call: Certainly, and through the market cycle, human emotions are to be more fearful near market bottoms, and to be more greedy near market tops. Of course, near market bottoms, when everyone's fearful, that's the best time to buy. And near market tops, when everybody's bragging about their stocks, that's a great time to sell.
Vigeland: What's your advice to folks who are watching perhaps from the sidelines, and they know that things are going on in Europe that are making economies uncomfortable, they know that there is talk out there of a potential double-dip in the recession, how should folks deal with that kind of uncertainty?
Call: So, the negative news, let's say Greece, is 2 percent of the GDP of Europe, that's probably not going to take down the world. Europe is a very mature economy, where the emerging markets are much more dynamic, and the middle class is growing in the emerging markets, so you want to be invested in these firms that will benefit from the growth of the economies around the world. If a person is sitting on the sidelines with cash, if you need cash over the next three years, you shouldn't be in the market. You should have short-term cash needs in the bank, and the market's more for just long-term investments. There's going to continue to be volatility -- there should always be volatility in the markets -- and you should use that to your advantage when entering the markets.
Vigeland: Tim Call of Capital Management Corporation. If you pay attention to nothing else out of all this, remember, read the emergency instructions before takeoff.