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December 1, 2002

Reward Patient Clients

By Kathryn M. Welling

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It was Oct. 15. The stock market, having consolidated Monday, went bonkers from the open, adding a couple hundred points in early trading to the previous week's Thursday-Friday rally. Around Strong Financial Corp.'s suburban Menomonee Falls headquarters, both relief and a frisson of that old bull market electricity were palpable.

So was a certain chagrin, frankly, at being torn away from their quote screens-just as things were getting exciting-as I joined Dick Strong, and five of his top portfolio managers, Dick Weiss, Ron Ognar, Kate Schapiro, Jay Mueller and Chris Wiles around a conference table. Dick Strong had an over-riding agenda: Creating a program to encourage Strong's clients and customers to carefully think through their own long-term investment programs by letting them eavesdrop, in a sense, as a few of his firm's very best portfolio professionals did the same. Whether the session is ever transmuted into effective marketing is way out of my ken. This drastic distillation of the proceedings, however, ought to get some professional juices flowing. -KMW

The good news is that you are neither investment bankers nor sell-side analysts. The bad news is that you are selling mutual funds. Even if this rallying continues for quite a while - a lot of your clients, are still stuck in denial that the 1990's rollicking party is over. Not to mention in shock at the hits most of them have taken to their portfolios. As the extent of the damage really sinks in, retail investors might even start demanding absolute, not just relative, returns from their money managers.

Chris Wiles: I don't necessarily agree. Relative performance is a very salable item, but not if it's the only thing that a client is buying. You have to start from the premise that clients need to diversify their portfolios, to balance their holdings between stocks and bonds. You get your absolute performance and your absolute return from asset allocation. People lost sight during the bull market of the fact that the stock market is predominately a savings vehicle. It's not a way to get rich. Investing in stocks is just one other way to save money. And each savings vehicle, whether large-cap stocks, small caps, high-yield bonds, municipals - whatever, has to be measured not against some absolute standard, but against what you are trying to achieve. Against what your job is, what your charge is.

How can you talk about stocks as a saving vehicle? You have investors today who've lost 30 percent-90 percent of their "savings," if they entrusted them to the just about any equity fund near the top.

Chris Wiles: I totally agree that learning the hard way about what is a reasonable expected return is going to be a rude awakening for a lot of people. It will take time for people to warm up to the fact that you can make money in stocks again. But people are still putting money into their 401-Ks; They are still using equities.

Mutual fund redemptions have been going up rather dramatically, finally, in the last few months.