In 2006 Robert Isbitts, chief investment officer of Emerald Asset Advisors in Weston, Fla., self-published his first book, Wall Street’s Bull and How to Bear It. He says the book was intended to help investors and their advisors overcome the hurdles that are placed in front of them by financial markets and financial “salespeople.”
“It wasn’t common at the time to warn people about the things I warned them about,” Isbitts says. “But I have a relentless burning desire to re-educate the advisor population and their clients through them.”
When Isbitts sat down to write his second book, he targeted 2011 as a publishing date. And then 2008 happened. So he went to work and released his second book, The Flexible Investing Playbook (Wiley, 2010), earlier this year. Isbitts says he “had to take that same relentless burning desire to set the record straight and define the asset allocation strategy.” His new book in many ways updates the story of Wall Street’s Bull and How to Bear It and helps readers identify various issues that may not be obvious to them.
“I felt like there was demand from the first book that was untapped,” Isbitts says “It was important for me to do a really kind of tight, more comprehensive job in the second book because the stakes were higher after 2008.”
In the book, Isbitts takes the traditional 60/40 approach to investing (in which you put up to 60% in stocks and up to 40% in bonds) and gives it a makeover. He supports a tactical approach with a goal of making at least 6% of a 10% move up in the market and only losing 4% when the market goes down 10%. Isbitts lays out three strategies—a hybrid model, a concentrated equity strategy and a global cycle strategy.
The hybrid model aims to “produce a consistent stream of absolute returns with low market correlation over a minimum rolling three-year time period.” The concentrated equity strategy is meant to “take moderate risk, tag along with up markets, play good defense in down markets, and by that combination succeed over a period of three to five years.” With global cycle investing, the goal is to “carefully select active equity fund managers who are focused on the specific secular themes chosen” with a time horizon of five to 10 years out.
For Isbitts, the idea is to get clients to think about asset allocation as a means to delivering retirement income. “Wall Street did a very good job in the 80s and early 90s educating on asset allocation,” he says. “Something went wrong probably in the mid-90s. Investing went from something they did for retirement to something they did for sport. It became short-attention-span theater.”
Isbitts says his book is for advisors and their clients that have “reached or approached the tipping point in their asset allocation.” These are advisors who are realizing that a lot of what they learned and educated their clients about on asset allocation was mostly wrong, he adds. Isbitts argues that out of the last 11 decades there have only been three in which the stock market had sustainable upside for the duration of the decade: The 80s, 90s and the 1950s.
“The problem is baby boomers grew up as investors in the 80s and 90s,” Isbitts says. “It’s sort of like growing up as a privileged child and then realizing that it was probably not going to be quite as sugarcoated as when you were growing up. It’s a real shock.”
For readers on a tight schedule, Isbitts says that the most important chapters might be Chapter 4, “Identifying the Issues and the Enemy,” and Chapter 6, “Keys to Successful Asset Allocation.” The former “makes people think about self-inflicted wounds.” The latter is “the prescription after you come up with the diagnosis,” Isbitts says.
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