In honor of Black History Month, we are honoring key members of the African American community who have made a lasting impact on the financial industry. History loves rule-changers, game-changers and world-changers, and Alonzo Franklin Herndon elegantly achieved all three. Born into slavery in 1858, Herndon rose to become Georgia’s first black millionaire and he built an industry along the way. Recognizing a need for low-to-moderate income earners to have access to life insurance, Herndon founded Atlanta Life Insurance Company with a $140 investment. Today, that company spans 17 states and remains the only African-American owned and privately held stock company in the country with a financial services platform that includes asset management and insurance. Emancipated as a small boy following the Civil War, Herndon and his family began their free life in abject poverty. They all worked as sharecroppers and young Alonzo also helped out by peddling goods and working odd jobs. Due to these financial constraints, he managed just one year of formal education in his entire life. He reportedly left his hometown with just $11, which he used to begin learning how to become a barber. A quick learner with a natural business mind, he eventually owned three highly successful barber shops in and around Atlanta. The flagship shop, called the Crystal Palace, featured gold fixtures, marble floors and crystal chandeliers, and catered to the city’s elite white businessmen. In a painful irony, Herndon could not enter the front door of his own business due to Jim Crowe Laws. Still, he saw his customer base as opportunities to learn, he enjoyed picking their brains while he cut their hair and he used this knowledge to build an astonishing legacy. He began purchasing real estate and eventually owned 100 properties, including a stately mansion he helped design that became his family’s home. Today, you can tour that home and appreciate its fine details. In 1908 Herndon bought a… | Read More »
Investment Management
Active money management and the cloud
The success of any active money managers often relies on his or her ability to sift through and analyze data without being distracted by outside noise. This concentration allows them to base their investment decisions on actual metrics rather than on the media interpretations of them. They look at market drivers, consumer sentiment, sector growth, each company’s fundamental and technical health, industry structure and sustainable competitive advantages. Our investment team, for instance, has been tracking companies related to cloud computing for more than five years and that persistence has paid off. Stocks driven by cloud computing have outperformed the S&P by 8.53% year-to-date, by 9.28% in 2019 and by 21.37% in 2018. Examples of this type of stock include Amazon, Microsoft, Google, Salesforce, Alibaba Group and Adobe. Companies related to cloud computing have been outperforming analyst’s predictions and have become some of the fastest growing on Wall Street with high profit margins and return on capital. According to a recent article in Bloomberg Magazine, though, many active managers missed this trend, with just 37% beating their benchmarks in January. One major reason for this lag has been the tendency of these active money managers to shy away from the technology sector, believing many of its strongest performers have run their course. Based on metrics, though, this sector – and those companies related to cloud computing in particular – still have room to grow. The companies enjoy high barriers to entry, maintain power over their suppliers, possess pricing power and face little threat of substitute products. When the economy does slow down, cloud-related companies should remain resilient due to their efficiency, lower operating costs and easy access to state-of-the-art innovation. As with any sector, the technology sector will face its challenges and our analysts will be working hard to take advantage of new opportunities and to mitigate any losses these challenges present. An added advantage our active managers enjoy is that… | Read More »
Three key investment lessons from the past decade
As we unwrap a fresh new decade, we find ourselves looking both backward with appreciation for all the past has taught us and forward with energy and optimism. This kind of chameleon-eyed vision allows us to gather all we’ve learned, pack it up and take it into the New Year. Here are three lessons this decade offered that we’d all be wise to carry forward: Bull markets don’t last forever, but they don’t end with every dire prediction either. Like almost anything else in investing (and life!), the key is to analyze data and react based on knowledge and not emotion. All investors want to make money and, with sustained low interest rates, the place to do that right now is in the equity markets. So, the human desire to succeed is a key market driver and that won’t go away because a yield curve briefly inverts. Track the trends while ignoring the trendy. We live in a fast-changing, noisy world in which today’s Tik Tok video can become tomorrow’s CAN’T MISS INVESTMENT! But not every IPO gains traction and plenty of them fail outright. Patience is the key here, along with studied analysis. Who would have thought Amazon would be a good investment back in 1997 when it launched at $18 per share. Today, it trades at closer to $1,800 a share. For every Amazon, though, there’s a Pet.com, which declared bankruptcy nine months after its IPO. Data drives sound decisions. Read the headlines, but don’t invest based on them. It’s important to keep up with the daily news but it’s equally important to understand their impact on the markets specifically and the economy as a whole. President Trump’s Impeachment hardly moved the markets at all, though his administration’s trade war with China had nearly a daily impact. Even when geopolitics develop into a headwind, they are just one of several factors impacting the markets. All three of these… | Read More »
Still fertile ground in the equity markets
Interest rate cuts and rising hopes for a trade deal between the United States and China are boosting confidence in the financial markets and creating fertile ground for investors who have stayed the course in the equity markets. As earnings season wraps up, the Winch Financial investment team is pleased with its current portfolios, which are well-positioned to take advantage of this extended bull market. The S&P 500, Dow Jones Industrial Average and NASDAQ Composite all have been trading at record highs recently as investors get a more positive picture of American corporations’ health. Additionally, the fact that the U.S. and China are close to finalizing a Phase One trade deal is a positive step and has changed market perceptions regarding the trade war. The low interest rate environment is also providing a bullish backdrop for stocks. After underperforming during the year, emerging markets are also starting to perform better. Although stock valuations are starting to extend, many still offer favorable risk/reward tradeoffs, which allow tactical investors like us to find even more solid investment opportunities. Of course, a pullback is always possible, especially when so much of investor sentiment is driven by headlines. We will be monitoring those factors carefully. It is equally likely that those investors who have trailed the market this year will be playing catch up before the end of the year, which will lead to some performance-chasing support for the market and a potential year-end rally. As always, our team will be analyzing these market factors closely and adjusting our portfolios as they deem necessary.
Algorithmic trading ups the pace on Wall Street
On Monday Feb. 5 the Dow Jones Industrial Average suffered its largest one-day drop ever, falling nearly 1,600 points in the middle of the day before closing 1,175 points below the prior day’s close to register a one-day drop of 4.6 percent. In the intervening days the Dow, along with the rest of the stock market indices, appear to have stabilized somewhat and traders have bid prices back up – at least in the short term. The initial catalyst for the selloff was a sudden fear on Wall Street that inflation and interest rates might rise more rapidly than previously thought. High interest rates cut into corporate profits and so a re-evaluation of what corporate shares are worth caused a number of investors to trim their holdings in equities. But what happened next is the real story. To understand why stock prices experienced such drastic swings over the past week, we have to go back almost two decades to when Wall Street firms like Goldman Sachs, Merrill Lynch and others invested heavily in computer technology and human capital to take the guess work out of investing and also make their trading more efficient. The big Wall Street banks sent recruiters to prestigious institutions like MIT, Cal Tech and Stanford to find and hire the most talented mathematicians and computer scientists to study the stock market and design trading strategies that would bring mathematical precision to the decision-making process and tie them to the most powerful computers to execute trades in fractions of a second. These mathematicians designed what are called “algorithms.” Algorithms are a specific set of clearly defined instructions aimed at carrying out a task or process. A simple algorithm can be found in your home’s thermostat. The thermostat is programmed to turn the furnace on when the temperature falls below a pre-determined degree. Trading algorithms, by contrast, are extremely complex with pre-determined factors running in the hundreds. One… | Read More »