Financial Wisdom

This article was originally printed in the Rancho Santa Fe Review on June 26, 2008, and was not authored by American Money Management, LLC or any of its representatives.  Please read important
Disclaimers and Disclosures Here

SD Ranch Coast News 

RSF man’s career includes rock n’ roll and high finance

•Firm’s Fallen Angels Income Fund ranked No. 1 in its category by Lipper

By Joe Tash

Long-time Rancho Santa Fe financial adviser Gabriel Wisdom didn’t expect his firm’s 18-month-old Fallen Angels Income Fund to be ranked No. 1 in its category by Lipper, a well-known mutual fund ratings service.
But earlier this month, that’s exactly what happened – even though the fund hasn’t been around very long, and its assets are modest in comparison to funds offered by such industry heavyweights as Fidelity, Vanguard and T. Rowe Price. Lipper ranked the Fallen Angels fund as tops among 537 similar funds in its category for year-to-date returns for 2008.

“It surprised us,” said Wisdom, 58, who is well-known in San Diego as a finance expert and a radio and television personality, including his early work as a “hippie DJ” at San Diego and Los Angeles rock radio stations.

Wisdom is managing director of American Money Management, which specializes in managing custom portfolios for its clients. It recently launched two publicly traded mutual funds, the Fallen Angels Income Fund and the Fallen Angels Value Fund, which take advantage of investment strategies developed by Wisdom and his partner, Michael Moore, to maximize their clients’ investments.

According to Wisdom, “fallen angels” is an old Wall Street term used to describe companies whose fortunes have declined, but are expected to rise again.

Rather than pulling back from a market because of falling stock prices, Wisdom and Moore think that’s the best time to shop.

“Our style is to remain in cash until bargains show up. This is a good market for us, we like it like this,” said Wisdom. Moore spends his days “combing the bloodied landscape,’ looking for something that’s fallen into excessive lows, well below its intrinsic value, said Wisdom.

Wisdom believes Wall Street operates in a way that runs counter to common sense, pointing out that when goods go on sale in a department store, shoppers flock to pick up bargains.

“Whenever anything goes on sale on Wall Street, buyers stay away, they withdraw,” said Wisdom. On the flip side, he said, buying “tends to hit its peak, in terms of participation, after prices have already risen for a significant period of time.”

The Fallen Angels Income Fund is a “mixed-asset” fund that seeks to provide income or dividends to investors, said Wisdom. The fund has no load or sales charge, and the minimum investment is $10,000. Currently, said Wisdom, the fund has assets of about $40 million.

The fund’s year-to-date return as of June 20 was 2.03 percent, according to the Morningstar rating service. According to Wisdom, the Fallen Angels Income Fund has done better than many other similar funds, which have suffered losses in this year’s volatile market. He said some sectors of the market are down 20 to 50 percent.

Wisdom has worked in the financial field in San Diego for 25 years. Before starting his own company nine years ago, he worked for investment houses such as Shearson Lehman Brothers, Prudential-Bache and Sutro and Co.

He has also provided commentary on financial issues for local television and radio stations, as well as “Marketplace,” a nationally syndicated financial affairs program that runs on public radio stations. “The Gabe Wisdom Show,” which features interviews with the authors of books on the stock market and investing, airs on AM 1000 at 4 p.m. each Monday and Friday.

Wisdom got his start in radio in the 1960s, when he worked as a disc jockey at such pioneering San Diego rock stations as KPRI and KGB.

“The Beatles were still together when I started in radio,” he said.

He served as the inspiration for a character in Cameron Crowe’s film about the rock scene in the early 1970s, called “Almost Famous,” which was filmed in San Diego.

His transformation from DJ to financial adviser began with a series of real estate investments in the 1970s, which turned sour with a market downturn in the 1980s.

“I wound up giving away my properties so I didn’t have to carry them,” he said. “It was a real hard lesson in economic and business cycles.”

The father of three daughters, Wisdom and his wife, Diana, a clinical psychologist, live in Rancho Santa Fe.

Volatility is not the same as risk.  We define risk as the permanent loss of capital.  Markets fluctuate and bear markets are inevitable, and occur with relative frequency to flush out the excesses of the previous bull run.   Warren Buffet has suggested that investors “Learn to profit from the folly, rather than participate in it.”

If you’ve kept score, carefully cataloging the public predictions of high profile experts, it’s hard not to be bullish on the stock market right now. Especially given all the scary economic and market headlines. Jonathan Laing’s story in Barron’s (Ready for Dow 20,000) reported Alan Greenspan now asserts that the current financial crisis is the worst faced by the U.S. since World War II. Other public figures concede that the latest crisis, the sub-prime mortgage meltdown, threatens to remove trillions of dollars from the capital markets.

Remember, you make your money in bear markets.  You just don’t know it at the time.  The greatest investors in history have paid little or no attention to day to day market fluctuations.  They focus on price (less is more), value (quality at a discount), and the rate at which their equity is compounding (rising book value).

“TO BET ON A PROLONGED SLUMP IS TO BET AGAINST THE GOVERNMENT, MARKETS, AND HUMAN NATURE.”
~James Finucane

Barron’s Magazine writer Jonathan Laing recently profiled 67 year old analyst James Finucane, who has been great at calling stock market lows, including the low reached after the October 1987 crash. He has observed that every major financial crises has created spectacular buying opportunities, especially when crises of the past reached crescendos. To him, the government sponsored bailout of Bear Sterns was a crescendo event. The financial panics of 9-11-2001, 1998 collapse of Long Term Capital Management hedge fund, and the 1994 Mexican peso devaluation were similar in magnitude.During these crescendo events, many investors panicked and sold out fearing further declines. After government and central bank intervention, the markets moved sharply higher. Buying high and selling low is a hallmark of investor behavior. It provides educated, unemotional participants terrific profits over time.

“ANYONE WHO BELIEVES EXPONENTIAL GROWTH CAN GO FOREVER IN A FINITE WORLD IS EITHER A MADMAN OR AN ECONOMIST”
~Kenneth Boulding, Oxford educated economist

Consumer confidence is at a 17 year low, housing and retail are still slumping, and investors are fearful. Money market cash has soared to approximately $3.5 trillion dollars, versus $2.2 trillion at the market lows of 2003. Interest rates are lower than the rate of inflation, which suggests that governments and the Federal Reserve member banks have a clear incentive to promote growth. Money always goes where it’s treated best, and right now many of the world’s greatest businesses are on sale. We agree with Finucane’s analysis. The fuse for an explosive rally has been lit.
Buy the bargains now before the market takes off.

Read the whole issue here:
http://www.fallenangelsreport.com/email/060508/income-fund.htm

Disclaimer
The opinions expressed are those of Gabriel Wisdom and Michael Moore and do not necessarily reflect the opinions of American Money Management, LLC (AMM), an SEC registered investment advisor who serves as portfolio manager to private accounts as well as to mutual funds. Clients of AMM, Mr. Wisdom, Mr. Moore, employees of AMM, and mutual funds AMM manages may buy or sell investments mentioned without prior notice. This newsletter should not be considered investment advice. The opinions expressed do not constitute a recommendation to buy or sell securities. Investing involves risks, and you should consult your own investment advisor, attorney, or accountant before investing in anything. Current stock quotes are obtained at http://finance.yahoo.com. Prices are as of the close of the market on the previous day of trading.