Asset Manager Talks About Life After Jumping Ship
MADELEINE BRAND, host:
Paul Krsek looks like a genius these days. He's an asset manager in Napa Valley, California. Last year, he sold all of his clients' stock holdings before the bubble burst; he then invested in gold and oil. We've been checking in with him periodically. So, he's on the line again now, and Paul Krsek, what are your holdings now?
Mr. PAUL KRSEK (Founder and Chief Investment Officer, 5T Wealth Management, LLC): Well, we still own gold, but we don't own oil. We sold that close to its peak as well. But most of our model portfolios today are invested in partially in corporate bonds, a little bit of gold, and the rest is in cash.
BRAND: And why corporate bonds?
Mr. KRSEK: We want to make money for our clients in 2009. We've told our clients that our goal for this year is to make them money on their accounts regardless of what happens to the stock market. So, with stock market down already 15, 16 percent for the year, we can see that one more time, stocks are not a reliable place to be. So, we've settled on short-term corporate bonds; of course, we're defaulting to very high-credit-quality bonds. We want to be in very short-term bonds because we don't want to take the risk to be in the market for, you know, longer maturities. And we're getting, you know, four percent, five, sometimes even seven-percent interest rates on those bonds that we're holding.
BRAND: You know, a lot of advice out there is the same advice we've been hearing for years now, and that is the buy-and-hold advice. Even Warren Buffett is saying that. What do you think about that?
Mr. KRSEK: It's a philosophy that grew out of the 1980s and 1990s, and by that I mean the success of the markets in those times. It didn't exist before. You know, I was young enough to be in these markets before all that got started. In 1981, 1982, following the 16-year bear market of the 1960s and 1970s, you couldn't give away a stock. No one talked about buy-and-hold; that philosophy didn't exist then. This is all revisionist thinking that's come out of the success of the two decades in which the markets went well. But if you're in the camp that we are, we believe that this current market cycle is more like the 1960s and '70s, maybe even like the 1930s, where, in the '60s and '70s, what buy-and-hold got you was 16 years of no returns. That's a lot of buying and holding for no return.
So, for those people that are stuck on that buy-and-hold, we'd suggest to them, look at more market history. If you have a listener who has lost 30 percent in the market in this down cycle, they need the market to compound at seven percent per year for the next six years to get back to even. If they've lost 40 percent, they need eight years at seven percent. You know, frankly, I know elderly people who have been left in this market by people who believed in that buy-and-hold theory, you know, that are now in their 70s, 80s and even 90s. They don't have 11 years left. They will never see their money back.
BRAND: So, what would you advise for the rest of us?
Mr. KRSEK: Well, I would advise a couple of things. One is stop listening to Wall Street platitudes. Wall Street, frankly, doesn't know anything. If they did, they would not have left their clients in for one of the greatest bear markets of all time. Number two, use some of your own judgment and common sense. People with long-term horizons might want to step a toe in the markets, but you have to do it with an open mind that you may lose more money. And if you are not prepared to lose more money, don't go in to the markets. There will be a day when earnings stop going down.
BRAND: So, we've all heard, don't open, don't even look, at your 401(k) statement; just put it away. You say, no, look at it and rebalance?
Mr. KRSEK: My gosh, no, no, no. I mean, you know, Rip Van Winkle goes to sleep for 20 years and doesn't look at his statements, and when he wakes up, his money is worth half of what he started with. And when he went to sleep, he was 40 years old. Now, he's 60. What the heck does Rip Van Winkle do? You know, Rip Van Winkle doesn't have enough life left to get back his money.
BRAND: So, let me ask you this. I'm going to open my statement now, and what should I do with it?
Mr. KRSEK: If you're retired and you are living on your investments, you have no business in the stock market right now, none, zero. If you are not retired, you are contributing money to your investment portfolios, you're actively adding money, and you have the stomach for losses, then you can buy. When you look at GE at $8.55 a share, when you look at Dow Chemical at seven bucks, the juices do get flowing. You can say to yourself, gosh, I'd really like to own these on the bet that 10, 15 years from now, they'll be higher. But you have to understand that they could all be cut in half before they go higher.
BRAND: Paul Krsek is managing director and chief investment officer of 5T Wealth Management based in Napa Valley, California. Paul, thank you. It's always great to talk to you.
Mr. KRSEK: It's always great to talk to you.
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