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April 29, 2024 13 mins
The stock market has hit record highs, but we’re also in a period of high interest rates and high inflation. What does that mean for your money? How and where do you invest in a volatile economy?  Our guest is stock market and asset management expert, Ed Long, Managing Principle of Avity, an investment management firm in Greenwich CT with over $1.5 billion in assets under management. With over a quarter of a century in managing both equities and bonds, Ed Long has also worked for U.S. Trust in Palm Beach, Florida, Lazard Asset Management in New York City, and Merrill Lynch Asset Management Group. 
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(00:02):
Welcome to Get Connected with Nina delRio, a weekly conversation about fitness,
health and happenings in our community onone oh six point seven Light FM.
Good morning, and thanks for listeningto get Connected. So the stock market
has hit record highs, but we'realso in a period of high interest rates
and high inflation. What does thatmean for your money? How and where

(00:24):
do you invest in a volatile economy? Our guest is stock market and asset
management expert ed long Ed. Thankyou for being on the show. Thank
you for inviting me. Ed longis managing principle of Avity, an investment
management firm in Greenwich, Connecticut withover one point five billion dollars in assets
under management, with over a quarterof a century in managing both equities and

(00:46):
bonds. Ed Long is a soughtafter an accomplished guest speaker at events and
lecture at universities, quoted in Baron'sBig Money Lead Stories. So, Ed,
so much to talk about, butjust to kind of set the table.
What is your overall philosophy for investing? Yes, our overall philosophy is
to invest in high quality securities andnot to market time. So those are

(01:08):
things that many investors make mistakes withthey try to time the market, which
is really a feudal thing to do, and investing in stocks that are speculative
or companies that don't have competitive advantagesor have high leverage is really a recipe
for disaster. So we try notto do those things because our clients really

(01:29):
want to protect their wealth and growit, and that's the only way I
know how to do that. Maybethat answer addresses the next question I have.
But since we have high inflation rates, high interest rates, what do
most investors get wrong during a timelike this. Yeah, they conclude that
inflation is bad for stocks, forexample, and history shows that inflation can

(01:51):
be good for stock investing. Now, if we have hyperinflation, that obviously
is not the case. But littleinflation is good because companies can pass along
those pricing for example, and theycan increase their profits as long as they're
good management teams and they figure outhow to adjust for the new environment.
So we're seeing that this year,we saw it last year, and you
can go back even further into theeighties and even in the seventies, the

(02:14):
stock market did pretty well. Itwas up and down, but it did
pretty well, especially for retirees.How can or where can high interest rates
be useful? Where do they posea challenge? Well, high instrates can
be useful if you're going to bebuying you know, fixed income securities,
bonds, things like that, evenmoney markets. So that's good. And
as I said, you know,the higher interest rates are really a signal

(02:36):
of inflation, and so the stockmarket can be their friend in a situation
like that, So savers actually benefitfrom higher interest rates. So ed when
the stock market is high, asyou may be aware, people want to
look at their portfolios. They feelgood about it. But how should we
allocate our assets to be prepared forthe next dip that's always coming for most
people? What is the right assetallocation regardless of where the market is?

(03:01):
Sure, well, of course,you know, you really have to know
each person's situation, so there's reallyno one overall allocation answer. But generally
speaking, having a mix, havinga diversified portfolio, of course, is
very important. And again timing themarket is not recommended, and so the
best way to avoid sort of thepitfalls of timing the market is to invest

(03:23):
systematically, whether it be every monthsavings from your paycheck or something like that.
So that way, you're always investing, and sometimes you'll get lucky and
the market will be down, andsometimes you will not. But if you're
a stock investor, we have seenover the years, actually the last one
hundred years, that investing in stocksis one of the best asset classes for

(03:45):
growth. Since you're talking about timing, you've mentioned it a couple of times.
If we are down on a longterm investment in the market, is
there ever a wrong time to sellit and move on? Well, the
worst thing to do would be topanic, So that would be you know,
I just look at you know,during the pandemic, for example,
the market went down thirty five percentin a short amount of time and some

(04:08):
people did panic and sell at thebottom, and it was an emotional decision.
So I think you know, youwhen you get your emotions of all,
that is the wrong time to sell. We're all wired that way.
When we're faced with crises, wetend to want to fight or flee,
and panicking is never a good strategy. So you have to have a discipline,
you have to have a philosophy,and you should stick with it.

(04:30):
And if you do that, youavoid a lot of the pitfalls. We're
talking about. We're speaking with EdLong. He's managing principle of Avity and
investment management firm in Greenwich, Connecticutwith over one point five billion dollars in
assets under management. Ed has alsoworked for US Trust in Palm Beach,
Florida, Blizard Asset Management in theCity, and merrow Lynch Asset Management Group.
You're listening to get connected on oneO six point seven light FM.

(04:51):
I'm Mina del Rio. We're alsoan iHeart podcast. Since we talked about
selling, conversely, is there evera long time to buy? And I'm
thinking specifically at about something like Nvidia. By the time the average retail investor,
the average person on the street here'sabout a surging stock. It almost
feels like we're the last person onthe train. What signals or numbers should

(05:13):
we look for to tell us ifthere's still value to be had well with
each particular stock, you have tolook at the fundamentals, so you know,
it's hard in video is a verypopular name talk about because of the
artificial intelligence that's in front of usand that has probably many years to go.
But maybe if I speak more genericallyit might be helpful. So you
look back at the Memes stock era, where there were companies being bid up,

(05:38):
and you know, a lot ofthe Reddit boards were talking about stocks
and driving the stocks up every day, you know, based on nothing,
nothing fundamental. I think those arewarning signs that investors should really pay attention
to and be careful with, becauseif it's not fundamentally based, it's probably
not going to last. Since youbring that up right now, the market

(05:59):
is very high. Is the marketovervalued? Are we due for a correction?
And if so, how large?Yeah, it's hard to predict,
but I thought I would ask,that's a great question, and short term,
I'm not sure I could give youa great answer. And again,
when you say the market, youknow, there are you know, hundreds
of stocks and some some are overvaluedand some are undervalued. So I would

(06:24):
say overall, given the profit trajectoryof the market, in general, it
is a little bit high. Butagain there are different spots that are not.
So making a general statement is alwaysa hard thing to do, especially
with some of the dynamic factors wehave in play with inflation for example,
which ticked up a little higher thanexpected. Yeah, it really depends,

(06:46):
I hate to say, making ashort term prediction is very, very hard.
This is a question that maybe isperhaps hard to predict as well,
but I wanted to put it outthere as we have this conversation. I
think it was today there was newsthat Blackrock, the world's largest asset managers,
reached ten point five trillion in assets. Some banks and financial institutions are

(07:08):
now getting really big. Are wegetting to a point where some are too
big to fail? Are we atrisk for the crisis we had in two
thousand and eight? And if that'sa concern, what should the average investor
think about? No, in termsof the stock market, I don't think
they are, because again, youknow, the banking crisis was about leverage
and risk taking, and of coursethe banks like you know, or the

(07:31):
company you're talking about, Blackrock asan asset manager, so it's a little
different. But there is some concernabout the index world and that there is
a lot of money flowing into theseETFs that are just blindly bought, and
so there are questions about proxy votingand how do these companies like a Blackrock
vote in the interest of their clients. So that's a little more of a

(07:54):
concern than a systematic concern at thispoint. I know it matters a little
bit whom talking to their age inlife, whatever kind of risk tolerance they
have. But as far as diversificationgoes back to that diversification, what would
like sort of the pie look liketo you in an ideal world? Yeah,
that's a really good question. SoI don't think the pie should look

(08:15):
like a pizza pie. If youhave too many thin slices, you're going
to be hungry. Because what happensis is I think most people over diversify
and they ultimately dumbed down their returnsby overdiversifying. So you want to have
some slices, but you don't wantto have a lot of slices. So
it's pretty much like everything in life, you can overdo it. You'd want

(08:35):
to have exposure to stocks, forexample, most people would. You probably
want to have some exposure to fixedincome for capital preservation as well as income,
and most the vast majority of clientswould benefit and they don't need much
more. Believe it or not.Say you have a good deal in front
of you, you feel like you'vedone your due diligence. How much of
your portfolio should you invest in anyone company? We try to keep it

(09:01):
below ten percent. I really don'tthink having large concentrations is a great practice
because you never know what could happen, and so we encourage our clients who
come to us with those concentrations toeither headge them or to sell them down.
And it's just you can just lookat the financial crisis just you know,
fourteen years ago, who would haveever, you know, predicted that

(09:22):
the banking system would fail. Sothings come from left field, and you
definitely don't want to take that risk. It's just not worth it. On
the whole. Does the average retailinvestor do better than the market at the
end of the day. Is anindex fund the best choice? Yeah?
No. Index funds are fine,and they're you know, they're like ETF
index funds are unmanaged baskets of stocks, and they're great for folks who you

(09:45):
know, are just getting started andwant to have exposure to the S and
P five hundred, the five hundredstocks and that, and over time that
index is shown to do very well. When you get into different levels of
wealth, there's more complexity, there'smore tax strategies, and a lot of
those indexes aren't you know, optimalfor tax minimization. Strategies for example,
or tailoring an income stream, thingslike that. So they have a place,

(10:11):
but they're not for everyone. Whatdo you tell your clients about risk?
Depending on their age, depending ontheir their tolerance, depending on what
kind of portfolio they have. Yeah, risk is one of those terms that
are are it's almost customized. Soyou know, what does risk mean to
you? Some clients it means,you know, volatility, Some it's permanent

(10:33):
loss of capital. That's what mostpeople think of risk. But yeah,
it depends on the client. Butwe were risk managers first, so we
start with that. We try tounderstand our client's risk tolerance, and then
we look at the markets, thecapital markets and understand what the risk of
investing now is or parts of themarket, and we marry those two and
that's how we're able to protect andgrow client assets and keep the client invested.

(10:56):
That's the other thing. We don'twant clients to bail because the market
went down and that and that,and that's part of the risk tolerance equation
that we try to get our armsaround. And in general, what trends
do you follow and what do youignore? We try to follow the secular
growth trends out there so things thatwill last more than a quarter or two.
So think about cybersecurity threats, thinkabout productivity tools, things like that.

(11:22):
We try to avoid noise such asyou know, is the market going
to go down next month? Wedon't know. I mean, it's not
something we're really focused on. What'sthe hottest you know, uh, lottery
ticket stock, you know, astock that's going to go from a dollar
to two dollars. Those aren't highquality investments, So we avoid the speculative
side of stocks. We just don'tthink the risk reward is good for our

(11:43):
client base at least, and wewould we really would prefer high quality stocks.
And we're risk managers first, That'swhat we tell our clients. And
big picture, what are some timetested strategies for accumulating wealth at any age?
Yeah, I think methodical or systeminvesting, they call it. Dollar
cost averaging is really a great tool. Takes the market timing out of it,

(12:05):
not over diversifying, being somewhat focused, having a discipline, understanding your
risk tolerance. All those are greattime tested ways to ensure success. And
if you deviate from them, chancesare you're going to you're going to hit
a pothole, and you'll be facedwith an emotional decision, which is what
we want to avoid. And Iimagine that in your career you've followed certain

(12:28):
investors that are in other areas ofthe market. You've also seen what your
clients have done, whether they aremanaging a giant portfolio or managing just what
they've got to you know, they'veearned on their own. What is the
mindset of a great investor? Patients? Some of the best trades are ones
that you don't make, so youknow, having a discipline and having patients

(12:52):
are probably the top two attributes thatI try to emulate. And you know,
I've been doing this for thirty yearsnow, and I think those are
the things that our hardest to dobecause you always get pulled in different directions.
There's so much newsflow and noise.You really have to work at keeping
your discipline and being patient. Thoseare really time tested attributes that are great

(13:16):
for investing success. It Long ismanaging principle of Avity and Investment Management firm
in Greenwich, Connecticut. Ed thankyou for being on to get connected.
Thank you for having me. Thishas been get connected with Nina del Rio
on one oh six point seven lightFm. The views and opinions of our
guests do not necessarily reflect the viewsof the station. If you missed any

(13:39):
part of our show or want toshare it, visit our website for downloads
and podcasts at one oh six toseven lightfm dot com. Thanks for listening.
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