Why? Diversification and value
investing. These two acts can and have made all the difference for Lyon Capital Management
clients. For balanced accounts (accounts whose assets are balanced between different asset
classes), we invested funds not only in stocks and bonds but also in real estate
investment trusts (REITs) and Treasury Inflation Protected Securities (TIPS).
Within asset classes we diversified even further by
holding a significant number of different securities. For stocks we try to hold at
least 20 different issues with no more than 3 stocks of companies in the same
industry. Many investors learned, painfully, that a portfolio of 20 technology stocks is
not a diversified portfolio.
In addition we consistently apply a value approach
to stock selection. As a result we have stayed away from catastrophies like Global
Crossing, Corning, Enron and others too numerous to mention.
We never let a stock holding grow to more than 10%
of a portfolio. This strategy reduces risk and losses. Lyon Capital Management equity
clients over the last 3 years have enjoyed strong equity returns as a result of these
strategies.
For the fixed-income (bond) side of a portfolio we
typically use a mix of U.S. Treasuries, Federal Agencies, high quality tax-exempt bonds,
investment grade corporate bonds, and quality preferred stocks.
The risk of interest rates going up and the risk of
the issuer of bonds defaulting and not paying promised interest and principal are the two
biggest risks bondholders face.
To reduce interest rate risk we buy bonds of varying
maturities. To reduce default or credit risk we invest in U.S. Treasury securities. These
are fully backed by the federal government. U.S. agency securities have the tacit backing
of the federal government. Insured tax-exempt bonds have the backing of a state or local
authority and have interest and principle payments insured by independent third party
insurance companies. We make use of all of these securities.
To reduce credit risk on corporate bond
investments we typically buy a diversified portfolio of these securities, buy only
investment grade bonds, and perform our own credit analysis on each issuing company.
Now, to be sure there have been time periods when we
underperformed the equity and fixed income market indexes. In the go-go late 90’s our
stock returns of 5 to 7% were not always satisfying. Today returns like that would seem
like a gift from the investment gods.
Our positive equity returns in 2000 and 2001
and strong equity returns, compared to market indexes in 2002, are the reward for
diversification and value investing.
Clients nearing retirement age continue planning on
their time schedule, not the market’s. Those depending on a regular income in their
retirement have continued to receive it. Those hoping to grow their portfolios have nicely
weathered the market storm of the early 21st century. There is never a
guarantee for the future, but there are proven methods to reduce investing risk that we
have applied since the inception of our business and these have served our clients well.
An added bonus is that we have
performed this service for a very competitive and, we believe, reasonable fee. Our fee is
based not on hidden fees and sales charges, fund loads or brokerage commissions, but on a
simple one percent of the assets we manage. Our pay is based on our performance.
If you believe the time is right to get professional
assistance managing your money. We urge you to consider a manager who has performed well
in difficult market times: Lyon Capital Management. Call us or visit our web site at
www.lyoncapital.com.$$
