TheMoneyGeek Unplugged

St. Petersburg Florida – Day two of the NAPFA Investments Conference brought a parade of presenters, some better than others.  Here are highlights from the sessions that I attended:

The first session I attended, “Sharing Investment Research Resources” was put on by conference chair Carolyn McClanahan and member Nancy Bryant.  It seems that they, along with three other NAPFA members, have been sharing mutual fund research responsibilities and picks.  Each member has a particular sector of mutual funds to research and report on via a monthly one-hour conference call.  One member maintains the list of preferred funds and they all weigh in on the choices.  No one member is bound to use all the funds, and anyone can keep any fund that is dropped from the list.  The benefits in time and effort saved is obvious.  The purpose of the presentation was to encourage the formation of more groups of five around the country.  Watch for further details to come from NAPFA in the near future.  A conference call is planned along with the maintenance of a list of interested members.

Next I enjoyed a lively presentation by Doug Poutasse of the National Council of Real Estate Investment Fiduciaries entitled “Direct vs. Indirect Investments in Real Estate”.  Doug mostly discussed commercial real estate and the many ways to invest in them: directly, via REIT’s, via open-end funds, and via closed-end funds.  Closed-end funds, as you might imagine, are the least liquid of all types of real estate investments and keep your money invested for as long as they need it–there is no set timetable for return of your funds.  Open-end funds allow you to get your money at certain intervals, though they are less liquid than direct investments in real estate.  That was a surprise to me since I would have thought that direct investments were the least liquid of all.  But liquidity does not necessarily equate to profitability–you can get out anytime, but at what price?

After a break, Rudy Aguilera of Helios LLC presented a fast paced “Insulating Your Clients from Volatility.”  Rudy discussed how using options can protect the downside risk of many portfolios at a very low cost.  With several examples, he showed how porting just a fraction of the investment can improve the return while reducing the volatility of the overall investment.  I can’t profess to have understood everything he explained, but several of the examples made sense.  He also showed an example of how he could legally convert a long term capital loss into a short term capital loss using the wash sale rules to your advantage.

Our (rubber chicken) lunch presentation by Michael Sharmer of Skeptic Magazine did not disappoint and was the highlight of the day.  Michael gave a lively presentation about human behavior and how we tend to follow the crowd and how easily our brains can be primed to give the desired results.  He demonstrated his points with numerous multi-media examples showing, for instance, how our extreme focus on one thing can lead us to literally miss the gorilla in the room.  In one example, we were asked to count the number of rebounds made by a pair in a video wearing white shirts.  While that occurred, a man in a gorilla suit appeared and danced across the screen for several seconds, but most of us didn’t even realize it because we were focused on counting rebounds.  At a minimum, it makes a convincing case why texting while driving is a bad idea.

“Building Your Own Alternatives Fund” was a panel discussion presented by Giles Almond of Matrix Wealth Advisors, Sheila Chesney of Chesney & Company, Brian Farmer of Hirschler Fleischer, and  Jonathan Self of Compliance LLC.  The panel discussed the advantages of and the due diligence that goes into building your own pool of (say private equity) funds ultimately managed by a registered investment advisor.  Since most clients don’t qualify for private placement of equities due to high minimums, this can be a way for firms to offer these alternatives to your clients.  The work involved was by no means short or easy.

Continuing the alternative investments theme, Sheila Chesney continued with her presentation entitled “A Roadmap for Investing in Alternative Assets” and described how her firm went about developing their own alternative investment fund.  “The affluent are not looking for just another mutual fund shop” Sheila explained.  The key here is to perform extensive due diligence, diversify amongst alternate investments, and educate clients about the risks involved.  “And just because it’s new and different doesn’t mean that it’s necessarily riskier.”  Sheila stressed that setting up one is in no way a turn-key solution.

The day wrapped up with a nice reception at the St. Petersburg Museum for Fine Arts.

Please come back tomorrow for highlights of the third and final day of the conference.  For live updates, please follow my Twitter feed.