Interview with The Planner, continued...

The Planner: With the allocation settled, how do you go about selecting the stocks?

B&C: We use a top down approach. We begin by breaking up the equity world into ten different macro groups. Groups such as Basic Industry, Utilities, Financial Services, etc. We make sure every macro group is covered. We also make a judgment on the weight of each group... we don't simply divide by 10... it could be 5 percent in one, perhaps as much as 15 percent in another. We then decide which industry within the macro group is appropriate. Let's say we recommend steel, paper, and railroads within the Basic Industry group. The last selection is the company... for example if we go with railroads, there are a number of good railroads to choose from. We are not out to get the best numbers on the street, but the best numbers for the risk exposure. Typically, we buy 12 to 15 stocks for a client.

The Planner: Allan, you have said that an investor with several hundred thousand dollars of investable funds should avoid mutual funds and hold stocks directly. Could you elaborate a little on this strategy?

B&C: First understand we are not opposed to mutual funds, it's just that if you have the net worth, you can adequately diversify investing directly. You gain better control from a tax, timing, and asset allocation viewpoint. The investor in for the long haul can be damaged by unplanned redemptions of a fund.

The Planner: How about from the fixed income side?

B&C: We rarely sell a bond, and if we do it's because of a rating change. We stagger maturities... our duration is about six years and maturity seven or eight years. We are not being paid to bet on a change in rates or to time the bond market. We do a full range of corporate, munis, and treasuries. We don't like the GNMA's or mortgage funds because of the unpredictable principle returns... especially when reinvestment opportunities are likely to be limited by falling or lower rates. I might add we recommend some precious metals and REIT's, depending on the inflation outlook.

The Planner: You probably duplicate some holdings for many of your clients...

B&C: We do. Ninety percent of our portfolio is common to all our clients. This gives us economies of scale, particularly on the fixed income side. We general buy one-half to one million dollars in bonds at a time and of course all players benefit from the lower costs.