Stay Positive

How have these risks affected the way you’ve been investing, especially in light of the globalization of all markets?

CK

We are fully invested all of the time, so if a client has 70 percent stocks, we’re always 70 percent stocks. That also means that the majority of the time, we’re selling stocks because stocks do better then bonds. Because we rebalance our portfolios, during the good years, we’re net sellers of stocks. During the down years, we’re net buyers of stocks. So we sold stocks for the last five years and bought bonds. And we bought right into the huge bond rally. From March ’07 to March ’08, our bonds were up 12 percent. Now we’re trimming our bonds and rebalancing.

What have you been doing in your equity portfolio?

CK

Our turnover historically is very low; we still own some stocks we bought in 1989. One of those stocks is in the $50s, and on an adjusted cost basis, we bought it for $5. State Street Corporation [NYSE: STT]: We’ve owned that for a long time. Then the part that a lot of clients don’t focus on is the yield on cost. You take their dividend yield now and apply it to the original purchase price, and in some cases we’re at 15, 20 percent.

In the portion of your port- folio that you are selling, what are you buying?

CK

That’s our biggest challenge. The first part of that whole equation is to understand management. You can crunch numbers until you’re blue in the face. When we buy a stock, we typically try to find someone who’s recommending [to buy] it and someone who’s recommending to sell it so we can hear both sides of the equation. Some stocks we’d love to own, but the valuation isn’t right. We’d love to own PepsiCo, Inc. [NYSE: PEP], for instance. Donaldson Company, Inc. [NYSE: DCI], and C. H. Robinson Worldwide, Inc., [NYSE: CHRW] are both on the list. So you develop a list of stocks you’d love to own, because there’s one thing I’ll guarantee: Wall Street is likely to give you those stocks cheap, if you are patient.

What other local names do you own?

CK

We own Bemis Company, Inc. [flexible packaging, NYSE: BMS]. We’re concerned a lot about their growth. They pay a nice dividend, though: a 2.5 percent yield. They’re in a very difficult market right now because of the rising costs in the food industry. Plus, their raw materials costs are just crushing them. What’s interesting about Bemis is they made the leap to Brazil. When they did that, it told us something about the management; that they knew if they wanted to grow they had to do some other things in life. And that one move transformed their international sales, doubling them, I believe.

Is that how you’re capitalizing on globalization?

CK

Yes. We currently own five stocks out of the 25 stocks in our portfolio whose international sales are more than 50 percent of their business. We also buy selected no-load international-stock mutual funds for our clients. On the equity side, we own 8 out of the 10 sectors of the market, plus we’re diversified geographically. We’re also diversified by the size of the companies we own. The premise here at Compass is that true wealth in the United States is made with one stock—the Daytons, the Pillsburys, and the Microsofts of the world.