Money management firm WBI Investments, which specializes in investing in higher-yield, dividend-paying stocks, has recently been doing more business with wirehouse firms out of demand for these types of strategies. In the last year, WBI has increased its sales staff by 600 percent to keep up with that demand, Schreiber said, and assets under management have doubled from $350 million to $700 million. The firm also launched two absolute return mutual funds at the beginning of this year, which are based on its investing philosophy and mimic WBI’s separately managed account strategies. We sat down with Don Schreiber, Jr., CEO and founder of WBI Investments for a quick interview.
Registered Rep.: After investors struggled through the financial crisis of ’08, many have argued that buy-and-hold is dead. What’s your take?
Don Schreiber, Jr.: My big problem with the theory of buy-and-hold is that the theory assumes something about human behavior. People don’t buy-and-hold; they just can’t do it according to their behavior. Even when I’m down 50 percent, I don’t want to buy-and-hold, and I know what the markets do.
As an advisor, the present value of the dollar matters. In the first quarter of 2011, people just got back to even if they bought and held during the last few years. If you invested $10,000 into the Dow Jones Industrial Average in 1945, it would be worth $767,000 now if you bought and held. But if you reinvested the dividends, it would be worth nearly $9.4 million. Investors have a very difficult time capturing the gain from price appreciation. It’s difficult to know when to sell.
But as a planner, your job is to help clients get to retirement with the largest capital base as possible. The theory doesn’t match who we’re trying to help in the industry, and that’s why we invest money differently.
RR: So how do you invest?
DS: Using dividend-paying securities and absolute return strategies. We use dynamic and trailing stop losses to mimic what a long/short manager would accomplish. We set a goal for the stock, and when we feel it’s fully valued, we sell. We also carve out the amount of downside loss/risk the investor is willing to take.
With absolute return strategies, you try to capture the upside and minimize risk. The strategy is also more focused on preventing exposure to big down markets because those have more of an impact.
RR: Why is it so important to manage against the downside?
DS: It’s eight times more important to miss the 10 worst quarters than to capture the 10 best quarters. Diversification is not enough of a risk mitigator, as investors found in ’08. During that time, everything was sold off. There was no place to hide. If diversification doesn’t work in a crisis, it doesn’t do its job. Most investment managers measure their performance against a benchmark. So even if they’re outperforming the benchmark, they may be delivering negative returns. Investors don’t want that.
You have to buy low and sell high, and advisors and investors can’t do it well. You have to be able to successfully control downside risk. Higher-yield, dividend-paying stocks manage this volatility.