New York City NYC Financial Planners Wealth Advisors & Investment Advisers
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Answers & Observations

Stay up to date with the latest personal finance developments, financial planning advice, investment news and retirement planning tips from our team of certified financial planners and experienced wealth advisors here in New York City.

November 2007 was the worst month for our strategy since September 2001.

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By the end of October, we thought that the worst of the sub-prime crisis was behind us as many of the aggressive lenders (Countrywide, American Home Mortgage) in this space had already hit the wall.  However, starting with Citigroup's announcement on November 1st, a long list of larger institutions announced that they too would take substantial losses on mortgage related securities (commonly referred to as CDO's or collateralized debt obligations.)  If we knew that these securities were junk, we had to assume that Citigroup, Bear Stearns, Merrill Lynch, Morgan Stanley, Bank of America, Washington Mutual (and other banks) knew they were junk also.  Apparently, either the risk systems of those firms failed entirely, or else the banks knew the risks but couldn't resist the speculative returns. 

From February, when the bad news first became widespread, Merrill Lynch declined 39%, Citigroup 38%, Freddie Mac 47%, and MBIA 62%, but most of the loss occurred in the last two months.  For relatively solid companies with hundreds of thousands of employees, and revenues in the ten's of billions, the sell-off is pretty excessive.

Our allocation strategy is to focus on the three fastest growing components of the S&P 500, namely technology, healthcare and financial services.  We typically allocate 25% of our client's stock exposure to each of these sectors, compared to an overall weighting of 17%, 12% and 18% respectively for these sectors in the S&P 500.  Year to date, the total return on the S&P 500 is 6.9%, technology gaining 15.0%, healthcare gaining 2.9%, but financial services down 15.7%.  Prior to a monster short covering rally in the last 4 days of the month, about half our accounts were negative on the year.  Even with the subsequent recovery, on average we're still trailing the S&P 500.