Premature Selling Is Tough but Beneficial

Introduction

The vast majority of investment literature for professionals is about smart buying. Most professional investors pride themselves on their timing of purchases and thus focus on current conditions. While nothing in the art form of investing is easy, buying correctly is much easier than selling. But as active investment managers we should feel responsible for doing the difficult tasks to earn our premium pay over the mechanics, extrapolators and closet indexers.

From a career standpoint, unfortunately there is little difference from selling too soon and being considered wrong. However, any who have experienced the emotional trial of selling into a declining market have learned that it is even more difficult. All too often what appears to be a market break is a hesitation in a continuing bull market. Nevertheless, I believe I have an obligation to protect against significant capital losses for both my paying clients and the non-profit institutions I serve as a volunteer.

As many of my readers have learned I believe that my two great learning experiences were learning to handicap (analyze) at the race track and taking responsibility for my troops as an officer in the US Marine Corps. Thus I approach my current responsibilities today. Based on past analyses of recorded stock market bubbles, I believe that the odds are that some time over the next five years we could experience a major global decline in many stock and bond markets. While as Marines we would prefer to attack than defend, we have learned to capture an advantage after a hard fight. After more than doubling from the bottom of March of 2009, we should prepare our defensive positions. The enemies, or if you will the losers, that we won our advantage from will try to recapture their lost ground.

Excessive enthusiasm is not currently present, but momentum is growing

At the peaks of classic market tops, both professionals and the general investing public often plan lifestyle changes to take advantage of the wonderful new era that the markets appear to be promising. People pull cash out of savings and all too often the equity in their homes to put into the market. I remember commuting on the train with an acquaintance who announced that he would no longer be going to a well paid job at a major company. He was going to say home and day trade one stock from the Dot Com Bubble that was sweeping the country and much of the developed world.

As we examine the current US equity market, bear in mind that the NASDAQ 100 Index (the 101 largest non-financial stocks traded on the NASDAQ^* market) is selling at its highest price since September of 2000. Also the short interest ratio in these stocks has moved up to 5.02 days from 4.66 days just two weeks earlier. 

^* Disclosure: Owned personally and/or by the private financial services fund I manage.

We are not there yet. Confidence is improving both in the US and elsewhere, particularly in Europe and India with both Italy and India’s stock market showing 14% gains. Stock and bond prices are moving up with little in the way of earnings, dividends, interest income, or economic support. If this momentum accelerates and the gap between market prices and fundamentals gets to be too wide, a sharp fall could occur. Jason Zweig in the weekend edition of The Wall Street Journal summed it up well; “Those with unrealistic expectations are the first to panic after the slightest disappointment.” Unfortunately too many won’t panic as they will believe that it is just a temporary disappointment which will be reversed shortly. When the second or third disappointment happens, assets will be dumped at whatever the available prices are. The term complacency is being used frequently which indicates that investors currently are not worried. Also the same lack of immediate fear is shown in the CBOE’s VIX measure that is at its lowest level in more than a year.

Six items to consider when disposing of funds or managers

Our investment practice is to invest in funds, mostly open-end mutual funds. Recently we were asked in a formal Request For Proposal (RFP) to manage an institutional account what would cause us to sell or redeem a fund. This is an on-going process, but is taking on additional importance now that we are preparing for a peak and subsequent decline.

1. The first consideration is when a client’s needs change. We work with the client to anticipate changes both internal and external. Often in poor economic times various non-profits believe that they should increase their spending. We need to be able to support this change in planned spending rates. For corporate accounts poor economic conditions can cause lay offs which will affect retirement payouts. Also during poor periods some surviving companies see opportunities to make attractive purchases and thus cash is needed.
2. The second consideration I learned from the phrase used by the late Sir John Templeton which is that there are better bargains outside of the portfolio than in it. This is an easy choice when the client only pays excise taxes or none. For a tax paying client including in the switching costs are tax estimates including state taxes as well as federal.
3. The third consideration is when a portfolio manager or key analyst who is deemed to be critical to the investment results leaves or has significantly less time to devote to the fund. One needs to quickly assess the team around the manager who at least temporarily will manage the portfolio.
4. The fourth consideration is one of too much success. Can the existing portfolio manager handle a sharp increase in assets?  A related consideration is whether the very success of the fund has brought in more high quality competition that will make the job of the portfolio manager more difficult.
5. The fifth consideration is unexplained performance both on the upside as well as on the downside. Is the fund changing and why?
6. The sixth consideration is if the management company undergoes a significant change in ownership or organizational structure. This is of particular importance if it affects the fees and expenses of the fund and the financial/psychic income of the key portfolio managers, analysts, and traders.

Note that performance ranking is not a direct consideration. If we do our job correctly and particularly understand the underlying portfolio, the performance over time will take care of itself.

Please share with me publicly or in private communications what are your rules for switching investments and how are you preparing for the next bear market?  

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Copyright © 2008 - 2014

A. Michael Lipper, C.F.A.,
All Rights Reserved.
Contact author for limited redistribution permission.

Roles in Life Rule Investment Decisions

Introduction

In studying investment managers for more than fifty years, I have learned that the roles that they have played through their lives have had an enormous influence on how they invest. What is true for the professional managers is also true for individual investors. If that is my thesis, I should apply it to myself. Thus, the following will be a form of self-analysis. The purpose of this exercise is to suggest that others should examine what in their personal history influences them as investors. Our life roles and experiences go a long way in explaining our self-imposed constraints and proclivities.

Handicapping Thoroughbred Racing


I have probably learned more about analytical thinking and careful money management from my experience at the New York race tracks than from all the classes I took at Columbia or in earning a CFA designation.

The first thing I learned was the existence of "racing luck". Despite a great deal of time and energy spent on past performance data, unaccounted things can and do happen. Thus the weight of money odds always includes the betting market's views on uncertainty or racing luck. The second thing I observed was that the betting crowd can be wrong. The most popular bet wins less than half the time and in many cases more like a third of the time. Thus, I usually have an aversion to investing in the most popular stocks or funds. The third thing I learned was that there was a better way to handle my hard-earned money.

One aspect of the first lesson mentioned above is not to feel compelled to participate in every race and to pick my opportunities. As an investor this has probably led me to favor funds that have fewer rather than a larger number of stocks. The second part of my track-induced money management course was to look for opportunities where the probabilities based on my thinking were different than the odds offered. Often I would bet on my choice for second (Place) so if my horse did come in either first or second I could still cash a ticket. Often if the favorite did not make it up to the wire at the end, when my horse did, the payoff for Place was substantial. 

Investment Lesson: Bargains are hard to discover at the track and in the market but are worth the time and effort to find.

Collegiate Fencer

As a five foot nine inch champion team member I was assigned to fencing épée. The bulk of my opponents were considerably larger than me, well into the six foot level.

Investment Lesson: I learned not to be overly concerned about being small. 

The bigger the foes, the harder they fall.

An Officer in the US Marine Corps

Here there are three lessons I learned from the USMC:

1.    Tight discipline produces first-rate results.

2.    The best defense is a good offense.

3.    Taking care of your troops and listening carefully to their reports often leads to them having the answers to difficult problems because their practical experience is far superior to field manuals of instructions.

Investment Lesson: A disciplined approach to investing is vital.
   

Simply avoiding large losses is not enough; one needs to make money to deliver against the needs of the account. Be aware one does not have to have all the answers. Many smart moves come from those with less theoretical, but more practical experience. However, one needs to take command of difficult situations even when you lack enough information.

Securities Analyst

A single financial statement in and of itself is relatively useless. Early in the game of analysis we learned to compare one company against the other, usually by numerical comparisons. The next step was to compare to price. On a statistical basis one security is cheaper than the other. This is unfortunately where a lot of analysts and investors stop. Cheaper does not always equal better. Often there are other factors including qualitative items that the market values higher than a pure statistical measure. At times a premium price is warranted.

Investment Lesson:  While numbers are very important, they are not everything.

Entrepreneur

I believe I have a tremendous advantage over many other CFAs and analysts. I started a business. At times I turned around failing products. I met a payroll and paid employees and suppliers as well as corporate taxes. Too many armchair analysts tell corporations what they should do while they themselves have never done it. Today most corporate managers do a pretty good job on what they believe to be the objective. In analyzing a company in addition to its sheer survival, one needs to understand what management believes is the objective. All too often history has shown that professional analysts make lousy business leaders. 

Investment Lesson: We should be respectful of the specific competence required in securities analysis, in business and in non-profit organization management.   

Business Consultant

Because my firm produced the most complete data on mutual funds, and to some degree on brokerage firms, I was frequently asked to consult with CEOs of various fund and other financial organizations. The real world problem was that the statistical or ‘school solution’ answer to the presenting question could not be executed for a host of reasons. The challenge just as in the Marine Corps was, “When blocked, how to go around the enemy and /or improvise with new and often on the spot solutions?” The more consulting jobs I completed, the more I came to the conclusion that the real problem was people and how they acted or will act under change of circumstances. Often the biggest problems were the CEOs who hired me; even when they recognized that they were part of the problem.

Investment Lesson: As investors: we are the biggest hurdle to better performance.  

Understanding and overcoming these limitations may be key to this exercise.  For example, I often harbor a reluctance to sell when short-term disappointment is likely. The short-term can turn into long-term, with the possible result a long period of under-performance.


Investment Manager

By the time one gets the responsibility of managing large amounts of other people's money, one should know exactly how to construct the portfolios for optimum results. Even with so-called discretionary accounts there are specified constraints and unspecified constraints. The latter is what I call the wrinkled nose syndrome. When discussing an investment or a strategy with a client or a high influencer, the nose or some other non-verbal feature indicates a weariness or disappointment.

Investment Lesson: At this point an alert manager should recognize the flashing caution light. The manager can proceed at his/her own risk, but if the particular investment strategy or single investment does not work, the manager has entered the regions of career risk.

Trustee

For those of us who have been something of a success in the investment and other businesses and want to give back to a generous society more than just cash; donating time and effort come to mind. One is often asked to become a trustee of a non-profit organization. Thus, from time to time I find myself in the position of wrinkling my nose due to perceived incomplete research. With no ‘spare time’ to speak of, I usually must decline.

Investment Lesson:  You must be as careful investing your time as you are with your capital.  

At the same time I am empathetic with the managers and their staffs who are trying to deliver expected results while staying within the specified and unspecified guide lines.

In summation

I have performed all of these roles and they have significantly influenced my investment decisions. Through this exercise I am coming to a better understanding as to what makes me tick as an investor. Perhaps each of the readers of this blog could benefit from such an exercise. Let me know what you have revealed to yourself about the impact of the roles that you have played.

_______________________

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Copyright © 2008 - 2013 A. Michael Lipper, C.F.A.,
All Rights Reserved.
Contact author for limited redistribution permission.

Improve Your Investing with Unconventional Thinking

Though we think about the details of our investing almost all the time, rarely do we fully examine the foundations of our investment philosophy. If you will, they are treated as given. One of the standard analytical techniques is to contrast a particular viewpoint with something very different. Most often after the examination, we conclude that our basic premises are correct and if anything, believe in them even stronger as they survived being rigorously challenged. As part of this occasional exercise I look beyond the center of our beliefs, even beyond the periphery, to the fringe. In the following two sections I will briefly discuss two unconventional ideas in the spirit of providing contrast to conventional thinking. I have not concluded that these ideas are more correct than the conventional views or necessarily believe in the views expressed. (Just as I don’t believe in what I see in the bathroom mirror on some mornings.)

“Jobs” is an insufficient answer to global economic problems

“Jobs” is an insufficient answer to global economic problems. In numerous posts of my blog I have commented on the power of various four-letter words, some that can be used in polite society. Jobs is probably the single most used four letter word in today’s political world that can be printed in family newspapers. The lack of sufficient employment to create economic growth is a problem facing many, if not most, nations of the world. In the United States, the figures may show that if we include the unemployed, the under-employed, those who have officially dropped out of the work force, the young that never had a chance to find a paying job and the undocumented immigrants who are supporting families add up to perhaps 20% of the employed base. We know of hardly an extended family that does not have a member qualified to be included in this total. The conventional thinking is that government needs to indirectly cause employers to hire these people.

An unconventional approach would say that this is the wrong way of looking at the situation. As is usual we measure what is easy to measure, not necessarily what is important. Both for the employed and those who are beyond payroll status, what is important is the quality and quantity of the work being done. There are many unmet needs of our society that should be addressed. In almost every society there are at least three common deficits. When we look around us, up-close and at a distance, our physical infrastructure is approaching an unsafe condition. Our method and practice of education is producing children who are not prepared to get, hold and prosper in the jobs of today and tomorrow. The third major shortfall is that there is a crying need to modify people’s behavior in terms of what they eat, exercise, and how they use their precious time, etc. Today’s government cannot really address these issues and if it could, it would probably do a poor job. Private businesses are stretched to meet their own internal needs; thus some of the workload falls on the non-profit world. The problem is that these institutions and to some extent families, all manage their expenditures carefully and for the most part, extremely prudently. What they don’t do is measure the productivity gained through the changed lives of their various assisted clients.

These productivity measures (including the value of work and maintaining a home) are difficult to measure, but some attempts are needed. As someone who is involved with a large number of tax exempt organizations (usually regarding their investments and other financial considerations), I hear very little comments relating to the measurement of the productivity that is being created for the various users of the organizations’ services. What is the lifelong value of a healthy baby compared to a chronically sick one? Returning a worker to full employment is worth what? Educating a child to get and hold a job of the future has what benefit? Helping a family eat healthier has what value? As is often the case, any measure is better than none; and over time, with diligence, measurement gets better. My guess is that for our economy these aggregate improvements, if encouraged, could in a somewhat tangible value, equal our commercial production of goods and services. Remember those employed in the US and in many other countries are a minority of the total population.

OK with the thought, now what should be done about it?

There are many things that we should do. First, encourage volunteer activities for all who are not fully employed or in an organized sport or intellectual activity. Second, if we continue to have complex tax codes, recognize the value of these non-profit gifts to society through the tax code. Third, organize work parties to help with building the infrastructure in our schools and neighborhoods. Finally, track the benefits to the clients helped, to instill senses of pride and accomplishment for the individuals and their commitment. An interesting side benefit of this potential surge in volunteerism is that it may well be a very good training ground for future employment. So when you hear various political leaders talking about a jobs program, guide them to a work-oriented program both on the pay and volunteer level, but in all cases demand various measures of productivity.

Could there be some benefit if temporarily the US debt ceiling is not raised?

I am sitting here on a lovely sunny Sunday afternoon with the television on mute waiting to see if anything of substance comes out of the political conference between the White House and legislative leaders on the debt ceiling. I believe that all of us hope that they can agree on a series of sound decisions on expenditures and possible changes to the tax code. But what would happen if August 2nd came and there was no agreement? We have never experienced this exact situation before. Many are afraid that it would be cataclysmic. Some believe that while bad, that there can be some benefits. As required by law, all bonded debt with interest will be paid. This is important, as an increasing portion of our debt is owned by foreigners. However, since we have been operating at annual deficit for many years, there will not be an immediate source of income to pay our non-bonded debt, which is largely various government payrolls (and payrolls dependent upon federal funds) to many Americans. To meet most of these requirements, like the rest of us, the government will have to come to a difficult decision to prioritize its payments. A possible offset to fill a portion of this hole is the sale of some of the government assets. We don’t know the true situation, as no balance sheet with the estimated value of the US government’s assets has been published.

One of the legitimate concerns of some is that an internal payment lag would hurt the standing of the dollar in the world and in the marketplace. In a strange and convoluted way, the monetary value of the dollar could rise. First, one needs to recognize that almost all paper currencies are losing value to inflation and in many cases, increasing their debt load. Many international investors believe that the dollar is the best of a bad lot. The recent rise in the relative value of the dollar is perhaps due to the fact that it is safer than other currencies. This safety is not a function of a government balance sheet, for as noted, it does not exist. The safety is primarily based on the strength of our military and geographical location to avoid a rapid foreign take-over. (With the expected substantial cutback planned for our military forces, we need to be thankful to wide oceans and reasonably friendly neighbors.) Traditionally the value of our currency was based on the implied promise of our taxing power on our citizens. The current impasse questions the strength of this implied action. Out of this clash of too high expenditure and too low tax revenues will come, eventually, a new equilibrium. As the problems that caused this conflict have been building for many years, perhaps as far back as the 1930s, the economic value of the dollar based solely on domestic considerations should have been declining. This new equilibrium may well give the dollar a sounder base and could in turn lead to some appreciation.

The second result that may come out of this is a clearer understanding on the ability of a creditor to sue the US government. Historically, no suit is possible without its permission. This is why, in many respects, high quality corporate debt is more valuable than US government paper. Quite possibly coming out of a temporary delay in payment by the government, a new standing of its obligations will be confirmed by a competent court.

What do you do with these unconventional thoughts?

After some consideration, you should see if these views change your existing investment outlooks. Second, and much more importantly, you should review existing more conventional views to see whether you are prepared for some unexpected result to challenge your portfolio. A list of current somewhat conventional views is shown below:

1. Interest Rates will rise over the next several years.
   
   
2. We will see the price of oil at least at $150-200 a barrel sometime in the foreseeable future.
   
   
3. Past performance is a good way to screen for investment managers at all times.
   
   
4. In choosing an investment management firm an easily explainable investment process and discipline is required.
   
   
5. Only managers with a well-defined succession plan for their operating companies and investment managers should be considered.
   

What Do I Recommend?

Even though I very much value my US Marine Corps training, I do not want to be invested in a lockstep portfolio that is rapidly marching only in one direction. I believe in regularly examining some unconventional approaches and people, to combine with more conventional approaches. The value for my clients is that we provide individually selected portfolios of mutual funds that permit having a number of different views working for them. The visibility of their portfolios and other critical disclosure information is reassuring most of the time.

Please share your thoughts on conventional and unconventional thoughts and how they might impact your investing.
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Have We Created New Fiduciary Standards?

I am fortunate to be a member of various non-profit investment committees along with a number of very keen investors. In these settings we are able to share our experiences and relevant readings. I hope that this blog community benefits from these associations. An off-setting disadvantage is that perhaps I read too much.

This week I read an excellent review by the renowned law firm Milbank, Tweed, Hadley & McCloy on the enactment by the State of New York of the “Prudent Management of Institutional Funds Act.” All too often laws and regulations have the impact of lowering the investment returns of sophisticated investment institutions. This is not the case this time, at least through my interpretation of the fine Milbank Tweed article.

Diversification

Diversification or “diworsification” as it is known in some circles, is addressed intelligently in the new regulation. The law appears to require a written investment policy statement to demonstrate compliance with the diversification directive unless the institution determines that it would be better served without diversification. If the institution deems that it would be better served without diversification, that policy needs to be affirmed each year. Mathematically oriented investors might point to the anomaly that if one could find the single best investment, adding a second investment (which by definition would not be as good as the first) would lower the average investment return.

The uncertainty of determining the best possible return suggests that a number of alternatives could improve the potential return over a single investment. For some institutions a thorny issue may be encountered when an over-sized position occurs due to an extra large gift of a security or perhaps more intriguing, a stock position that disrupts diversification due to its way above average performance and expected future growth. Thus, there may be a conflict between diversification and expected benefit to the institution. As an investment advisor as well as a member of various investment committees, I believe the mere fact that the issue of diversification should be regularly reviewed is a breath of fresh air.

The act, and there are similar acts in most states, does not define diversification. In the past, the laws governing investment relied on the 1830 dictate of Judge Putnam, deciding against Harvard College as to what was required to be considered prudent. In effect, he created the whole performance measurement sub-industry that clearly benefited me and perhaps investors, by requiring the prudent investor do those things that other intelligent and prudent investors do with their own money. The recently enacted New York State law appears to define “prudent” as actions that consider eight factors without specific reliance on what others are doing. Thus, trustees need to make their own decisions as to what prudence requires without necessarily being led by others. In many ways this may liberate investors from slavishly following the current popular policies, e.g. emerging markets, private placements or ETFs. At the same time, this freedom is frightening to the less-knowledgeable investment committees. In determining the prudence required, some institutions may want to review the makeup of their investment committees and/or consider the addition of one or more external investment advisors.

The role of each investment

The act, or at least Milbank Tweed’s interpretation, appears to drill down to the individual security position. Apparently each position has to be an integral part of the portfolio. Portfolios can no longer be a mere collection of assets without relation to one another. From my viewpoint, this focus can be extremely useful in the long run. All too often a security that is down in price significantly is an immediate candidate for sale for many investment committees. I believe that all positions should be reviewed for their potential to add, or in the case of down markets, stabilize the future value of the portfolio. One of the ways I and others build portfolios is to include investments that are likely to do well under a certain investment climate. Almost by definition some or all of these “hedges” will do poorly under other market phases. When they do poorly I am reluctant to remove them if I still consider that there is a reasonable chance that the investment wind will shift in their direction. I get extremely nervous when all the securities in appropriately balanced portfolios are going in one direction. At a recent client meeting, I commented that all of our fund investments were producing positive returns for the first ten months of the year, and that I was nervous as there were no losers. In the future this would unlikely be the case.

Spending rate

Perhaps the most significant element in the article is the following quote: “….spending in excess of 7% of the fair market value of a fund (calculated based on quarterly estimates averaged over a five year period) will be presumed imprudent, which presumption may be rebutted.”

There are several important elements to the quote. The first is the identification of an imprudent level. Second, the use of a twenty quarter average return. Third, that the imprudence contention can be rebutted. That the law (or at least Milbank Tweed) is, in effect, rate-setting, goes beyond the normal principles-based regulation. (I find it perhaps ironic that the level chosen is one percent above the old impermissible level of usury at six percent.) The rate chosen is below numerous pension assumptions, thus could be a cause of concern in the business and labor communities.

The suggestion of a five year rolling quarterly measurement device is a step in the right direction. In the institutional community, three years is the most popular measurement period. The cynic in me believes that three years is the shortest period that many consultants use to urge the replacement of a manager and the initiation of another fee generating search. The analyst in me objects to using three years, as often the market can move in one direction for the entire period, which is not representative of longer periods. The SEC appears to agree with me in requiring performance calculations within fund prospectuses to include one, five and ten years along with since-inception reporting. Market historians and at least one major investment management group have found that the best single fit to the statistics is four years. I suspect in part this works because of the US presidential election cycle that some market pundits use.

What is refreshing is while the lawyers have gotten deep into the weeds of setting investment policies, they have accepted that these views can be rebutted successfully.

Conclusions

As investors and investment managers, we must be aware of changes that lawyers and regulators force on the artform of investing. In the case of the Prudent Management of Institutional Funds Act, some of the clarifications are positive and far reaching. As fiduciaries, all involved are going to be held to a higher standard of prudence not just copying what others are doing.

What are your views?
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Ultra High Net Worth Grantors & Charities: Plans “B”, “C” and “D”

If the wealthy really believe in the good works of specific charities, they need to step up their investment of time and money to prevent charities from having to play the alphabet soup game.

‘Tis the season for charities to push for collections through cookie sales, luncheons and galas to meet the fund raising goals set in the “Affluent Times” of a year ago. This could be described as executing Plan “A.” Judging by last minute invitations to fill a table at prestigious events and low returns from auctions silent and live, Plan “A” is coming up discouraging short.

Depending on which non-essential, pricey consumer item one focuses on, sales fell off a cliff in August, September, and October. Confirming this trend is the decline in discretionary spending for ball gowns and high-end vacation homes. Unfortunately, gifts to charities are also way below budget - in many cases below levels of sustainability.

This is the budget season for charities, be it your Alma Mater, hospital, social services organization, or cultural institution. In each of the board meetings of the organizations that my wife and I sit on, expenses are being scaled back almost to the point of endangering the mission. Existing fund raising efforts are being pushed to be more effective. Thus, we are in Plan “B,” which is to continue the existing mission(s) using diminished, available resources. This is the plan which most military leaders are eventually graded, however some of us conservative investors fear that Plan “B” won’t work.

So far there is little talk about Plan “C” where “C” stands for cutbacks. Due to funding short falls, organizations may be forced to cease funding major commitments which could amount to 10-25% of Plan “A” expenditures.

A difficult by-product of Plan “C” is the compensation review of hard-working, effective senior level staff who are generally paid only a percentage of what similar work would command in business. In a Plan “A” World, this works well, however when commercial wages are being cut back, (which can happen soon), the ratio of high paid non-profit staff rises to perhaps an unsustainable level in the eyes of major contributors. As most non-profits are thinly staffed in senior positions by very hard working people, a reduction of their pay can lead to them being forced to leave. This would affect many donors at all levels who identify with staff leadership almost as much as with the charity’s mission. Staff departures at this level make necessary the consideration of Plan “D.”

Plan “D” is based on the belief there will not be a quick, cyclical recovery, placing into question the sustainability of a charitable unit. Plan “D” would merge the unit into a larger, perhaps umbrella organization. As an investor, a buyer and a seller of companies, I have a high level of skepticism that mergers work. Most that fail presume that revenues (in the case of charities, grants) will grow by just expanding the product line without significantly expanding the number of sales people. The flawed strategy also holds that a larger group might generate more favorable purchase discounts on products and services that can be essential e.g. advertising, cars, etc. For Plan “D” to work, a crisp execution is necessary.

The wealthy, that is anyone that has funds in excess of current needs, should be changing their priorities, moving grants/gifts to charities from a discretionary expense to an obligation level. This is the time when both present and future programmed dollars can mean the survival for many purveyors of good works. What is also extremely important is to make available one’s skills in sales, administration as well as the mergers & acquisitions of good people and organizations.

An important part of my approach to building a personal augmented balance sheet is the segregation of different demands on one’s wealth. Ideally, each charitable obligation should have its own portfolio of assets to meet the charity’s immediate and long term needs. The squeeze on today’s gift dollars should motivate people to create specific asset bases to support specific charities. There is no better time than now to start this process.