Breaking away from a 25-year cAR-eer at First Albany was a bit of nail biter for Hugh Johnson.

Though he and his seven-member investment management team were committed to moving forward on their own, buying out the practice he had started at First Albany in 1994 required borrowing money. And without a big institution behind him, Johnson — the firm’s primary rainmaker — fretted about pulling in enough clients to create a thriving business.

Johnson decided to hedge his bets, taking Illington Asset Management as a partner. The firm, which later became part of Thomas Lloyd Global Asset Management, brought needed capital, reducing the amount Johnson needed to borrow.


Despite his earlier concern, bringing in new business hasn’t been much of a challenge.

Johnson’s investment advisory firm, which launched in 2005, has doubled its discretionary assets under management to $1.2 billion and now also provides investment consulting for clients with another $1.1 billion in assets.

In 2010, Johnson hired Daniel Nolan from Goldman Sachs to be the firm’s president and chief executive, and the two of them bought back the bulk of Illington’s shares. Illington/Thomas Lloyd retains a 10% interest that Johnson says it simply doesn’t want to sell.

“I liked First Albany and had a lot of loyalty to them, but they didn’t have a strong desire to be in the asset management business and I did,” he says. “It took a lot of courage, but it’s probably the best decision I ever made — outside of marrying my wife, of course.”

Ironically, the firm’s big break came after the 2008 market crash, when a lot of investment advisors were scrambling to calm their clients.

In late 2007, Johnson, who carefully studies economic data to make asset allocation calls, believed that stocks had moved into severely overvalued territory. He drastically lightened his client’s stock holdings, taking clients who were normally 65% in stocks to 70% cash. “We made a lot of friends that year,” he deadpans.

Johnson readily admits that he can’t possibly predict what the stock market will do. This summer’s pullback in late August, for instance, came as a surprise, even though he had been reluctant to add to his client’s stock holdings because equities had seemed fully valued for several months.


Still, the reams of economic data Johnson studies each day indicated that the U.S. economy remained solid, so while other investors may have been selling, Johnson used the market plunge as an opportunity to buy stocks for new clients who were not yet fully invested. His normal practice with new clients is to stage them into the stock market until they hit their target allocations, he says.

When the Dow dropped nearly 1,000 points briefly one day before rebounding, he invested another tranche of client assets.

“I actually wanted a correction in stock prices to levels that made more sense,” he explains. This summer “I got that correction and more. And that doesn’t mean that stocks won’t fall further into undervalued territory. Anyone who tells you that they know what the market will do at any given moment needs medication.” 

Still, studying market history and economic data to make asset allocation calls is key to Johnson’s practice, and investment management is his firm’s sole focus. To be sure, Nolan, who is also a lawyer, can give great advice on estate planning. And the firm has a team able to advise the many nonprofit organizations that use its services on how to design an investment policy statement and fill out the requisite paperwork.
manage portfolios, not more

But while Hugh Johnson Advisors will help clients decide on what portion of their assets should be in stocks, bonds, cash and other investments, it doesn’t provide advice on buying insurance or a home, or for run-of-the-mill tax planning. The firm’s philosopy is that clients should manage their own lives; the firm will manage their portfolios.

The process involves analyzing market values and important demographic and social trends, and taking a hard look at the underlying economy to gauge the stage of the economic cycle.

That’s pivotal, Johnson says, because it tells you when you need to lighten up — or load up — on equities, as well as which segments of the market are likely to provide the best performance.

Once those determinations have been made, Johnson and the rest of his investment team choose which individual stocks and bonds to buy, sometimes skewing the firm’s core portfolio toward consumer cyclicals, at other times leaning more toward defensive stocks.

All client portfolios remain highly diversified at all times, Johnson says, following time-tested rules of risk management. These dictate diversifying among 10 sectors of the stock market and purchasing companies both big and small. The firm simply won’t load up on one company or one sector in an effort to beat the market because the risk of failure could be devastating to clients.

“We are not trying to knock the cover off the ball,” Johnson says. “Our goal is to provide near-market performance with less volatility and risk. We’re trying to provide sensible investment management of complete portfolios.”

Johnson has tracked the performance of the firm’s core portfolio going back 20 years. Over that time, both the median and average returns (gross of fees) have narrowly beaten market averages, while exhibiting slightly less volatility. The firm won’t beat the market year after year, he cautions, but over the long haul, the performance is solid.

“We win a lot of business because we have pretty good résumés, a good track record and a good story,” he says. “The most important thing you have — for anyone, but for us particularly — is reputation. You have to have a reputation for being honorable, honest, fair and providing good services at a reasonable price. If you can’t do that, you shouldn’t be in business.”


Johnson, who is in his mid-70s, says one question he gets from prospective clients is what would happen to the firm and its investment strategy if something were to happen to him.

The firm’s succession plan spells it out, but the formula is simple, he says. Nolan already has the title of president and CEO; Diane McKnight, a longtime employee, is chief compliance officer. They already effectively run the company and will continue to do so when Johnson retires. Investment decisions are made by a committee and based on a process that’s embraced firmwide.

“We get together every Monday and make decisions as a group,” Johnson says. “I may be the tiebreaker, but the methodology is ongoing — even if I’m not.”   

Kathy Kristof, a Financial Planning contributing writer in Los Angeles, also contributes to Kiplinger’s and CBS MoneyWatch. Follow her on Twitter at @kathykristof.

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