|Smart Bear Balanced Accounts
As the stock market struggles to maintain current levels, companies are
increasingly challenged to deliver earnings that justify these lofty stock
prices. Due to the market's historic over-valuation, prudent investors are
looking for alternative methods to generate growth and protect
capital, but to date have felt limited in their investment choices.
Perhaps they are not aware of the various options at their disposal, such
as a portfolio with a combination of stocks short, and short-maturity, AAA & AA bonds.
Lang’s Smart Bear Balanced product is designed to perform well in any market environment, but for the next several years the plan is to take advantage of a likely declining stock market environment. It also attempts to reduce the volatility associated with an up and down stock market. This is done through the use of inverse ETFs and high quality (AAA & AA) short-term fixed income securities that are interest bearing, and provide the total product with low volatility. Our overiding objective is to minimize risk in a very uncertain environment. We accomplish these objectives by limiting the inverse ETF exposure to 15% of the portfolio with the remainder of the portfolio (85%) in the above mentioned fixed securities.
All our accounts are set up in the client's own name with a third party custodian broker or
bank, as opposed to being "pooled", as in a mutual fund. This eliminates the main (and valid)
criticism of hedge and mutual funds: lack of transparency. With our product, you may
access your account online with the custodian anytime, and see exactly all assets currently held. In addition, one may redeem at any time without any penalties or special
fees, as opposed to a quarterly or annual limitation. Finally, our minimum
account size of $300,000 is much lower than most hedge funds.
The following annualized returns should give you a basis for
understanding what has been achieved under various volatile market scenarios. The composite returns are composed of two sources: Our real fixed income returns and our real three inverse ETFs (DOW, S&P, and Nasdaq 100) composite returns.
This product is specifically designed to perform particularly well during bear markets (amazingly only 4 down years during the last 16). In 3 of the 4 down years since 1999 "Smart Money" has achieved double digit positive returns, and a 6.5% return in the other down year of 2001. Equally significantly, we have exceeded two major stock averages (Nasdaq and Nasdaq 100) over this total 16 year period. Finally, most importantly for building wealth, when equity returns were very strong, we are pleased to have kept losses to a minimum (-0.55%, -2.06%, and -4.75%).
The relative weighting is 85% fixed and 15% ETFs. It turns out that this combination,
over this 16 year period, reflects the greatest return with the least risk.
|Smart Bear Balanced Account
History - Net of Fees 12-31-1999 to
|S & P 500
|12-31-99 to 12-31-16
|12-31-99 to 12-31-16
- Lang Asset Management, Inc.(LAM) is a
portfolio manager that invests solely in U. S. based fixed and
equity securities. LAM is defined as an independent investment
management firm that is not affiliated with any parent
- Composite has been valued monthly and
portfolio returns have been weighted by using beginning-of-month
market values plus weighted cash flows.
- Performance returns from 12-31-1999 to 12-31-2012
are composed of 85% of Lang's Fixed Income Tax-exempt Accounts Composite Returns and
15% of Lang's Inverse ETF Composite Returns. For the year 2013 and forward, to help reduce
interest rate risk, the performance returns comprise 85% of Lang's Enhanced Income Premium Choice Fixed Investment Return and 15% of Lang's
Inverse ETF Composite Returns.
- The benchmarks are the S&P 500 and the Nasdaq.
All indices include dividend income.
- Performance results are presented
after management fees and performance fees (net), and do include trading, and custodial
fees. The management fee schedule is as
1.0% annually of the assets.
Minimum Account Size- $300,000.
Minimum Annual Fee
Performance Fee (for accredited investors)
20% of the net gain (defined as
the sum of all realized and unrealized gains and losses over a
12 month period). The concept of a "high water mark" is
- No alteration of composites as presented
here has occurred because of changes in personnel.
- A complete list of firm composites and
performance results are available upon request.
- It cannot and should not be assumed that
future results will be profitable or will equal or exceed past
Consultants are increasingly recommending this type of asset class, similar to
their endorsement of international equities as a diversification measure
a number of years ago.
About the market...
- One hundred and fifty year high in
current price-earning multiples.
The current earnings multiple based upon reported (GAAP)
S&P 500 earnings is well above its historical average. That is,
investors believe that the prospective environment is so attractive that
they are willing to deem irrelevant over 150 years of investment history
(periods that include booms, busts, wars, high and low inflation and
high and low interest rates). In the mid-1980's, companies began to use
forward estimated operating (pro forma) earnings for reporting purposes.
These earnings disregarded many ordinary expenses that all businesses
experience from time to time. The historical p/e
on forward operating earnings has been 11, so if operating earnings are
utilized, the market is even more overvalued.
- Stock earnings yield versus bond yields
(the Fed model).
This model relates the reciprocal of the p/e
ratio of the S & P 500 to the 10-year Treasury bond yield. However,
there are three major flaws with this model. First, the model is based
upon data going back to about 1970. The problem is that the 10-year T
bond rate is now lower than at any point in the model, meaning that the
model does not include even a single data point that covers the current
period. In fact, prior to the late 1960s, interest rates were lower for
100 years than they were from 1970 through 1997. Yet never during that
time did the market sell at more than 23 times earnings. Secondly, it is
difficult to assess what earnings to use (trailing or forward, broad
indices or narrow, S & P or Nasdaq,
operating (pro-forma) or reported (GAAP) or core. Thirdly, comparing
risky stocks with non-risk bonds does not make intuitve
- Significant risk even at multiples
below historical average.
At the beginning of 1929, the forward p/e ratio
was 16.2, and the p/e in Oct. 1929, just before the 88% decline was
13.5! The market is now selling at about 17.5 times our smoothed trendline GAAP earnings, a P/E ratio associated with
market peaks for almost 200 years prior to the last decade
- Price to sales.
Corporate earnings are quite volatile, and difficult to assess. Thus, p/e ratios are somewhat nebulous, and various
iterations can be presented, depending upon the author's biases.
However, corporate revenues are much more stable, and ratios based upon
corporate sales reflect much less volatility. Comparing the current
price to sales ratio of 2.0 to the historic average of 0.8 suggests the
market is selling over a 150% premium to its long-term average. There are
fundamental reasons for the market to have sold, on average, at 0.8 times sales. If one pays much above this level, it
becomes very difficult to earn a reasonable rate of return on your
investment over an extended period.
- High equity expectations.
Polls indicate that investors
anticipate stock returns in the future will average 15% per year, and
that corporate earnings will increase 15% in 2017. This presupposes that
profit margins will maintain current levels, which are now close to
all-time highs. We strongly doubt this, given the huge overhang of debt. Surely, these investors will be
"Mr. Prechter’s Conquer the Crash is a must read. It
gives the investor a unique insight into the market that is not available
anywhere else. If Mr. Prechter's thesis is correct
(and I believe that it is), and action is taken accordingly, financial
devastation will be averted. If he is wrong, you will have only lost an
“opportunity cost”, which may or may not be meaningful. At a time of record
high stock prices, rampant speculation, and valuations higher than in 1929,
the choice would seem to be easy."
BARRON'S • Profile
Going Short, Winning Big Talking With Julie Lang Kirkpatrick, Portfolio
Manager, Lang Asset Management By J.R. Brandstrader Updated Jan. 19, 2009
11:59 p.m. ET THE WORST MARKET IN MORE THAN 75 YEARS HAS BEEN pretty darned
good to the clients of Julie Lang Kirkpatick. Their
separately managed accounts were up smartly in 2008, with many hitting
double-digits. Kirkpatrick pulled off this feat by following three
strategies, she says. The portfolios of some her clients were made up largely
of short positions in stocks, or bets on price declines; those accounts shot
up more than 50%. Another group had a mix of short and long positions -- and
a nearly 25% gain. Finally, Kirkpatrick's investors who chose to stick with
municipal bonds enjoyed 8%-plus returns, despite convulsions in that market.
The daughter-father team has a knack for short-selling stocks, and investing
in muni bonds. Craig Bromley for Barron's: Strong
returns appear to be nothing new for Kirkpatrick, 54, who runs Atlanta-based
Lang Asset Management with her father, Robert B. Lang, 79, Lang
Asset Management, Inc.