O' Connor Portfolio Management
Catherine O' Connor - The Pennsylvania State University
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Catherine O' Connor
Chief Executive Officer, O' Connor Portfolio Management
An interview with Catherine O' Connor, Visionary Fund Manager, Chief Executive Officer, O' Connor Portfolio Management
For our dedicated interview on the Risk Adjusted Solutions with CATHERINE O’CONNOR, Chief Executive Officer of O’ Connor Portfolio Management LLC, Executive Global takes and exclusive look behind the operation of one of America’s pre-eminent brokerage firms using proprietary technology to manage risk. We gain a fundamental insight into the award-winning approach to wealth management that has secured the portfolios of many institutional and private clients.
Catherine O' Connor CV
The Pennsylvania State University
2013 Registered Investment Advisor; O’Connor Portfolio Management, LLC
2010 The College for Financial Planning; Accredited Portfolio Management Advisor (APMA)
1999 The College for Financial Planning; Certified Financial Planner (CFP)
1993 IDS; American Express Financial Advisors; Ameriprise Financial
1979 Unitron Industries, Inc.
1977 The University of Colorado
1976 The Pennsylvania State University; B.S. Magnum Cum Laude, age 20
Risk Adjusted Solutions
EG: Your clients were not affected by the stock
market crash of 2008. In what ways does your unique approach mitigate against risk?
Catherine O' Connor: First, we mitigate risk by focusing on investments in the strongest sectors and
industries, and naturally the strongest become that way, because a larger amount of money flows there. Second, within those sectors, we find the strongest individual stocks. Third, rather than buy at market price, we identify support levels on charts where we think the stocks could “take a breather” if the market pulls back. We place computerised buy orders at that level, and wait for a fill “on the dip”. By doing so, there is less risk for our clients. Many report that they are happy during a market sell-off, because they had an opportunity to invest in a great company at a lower price. When the charts show lower highs and lower lows over a series of months, we would not be investing in stocks at all. This was exactly what happened from January to July of 2008, causing us to sell
stocks and buy bonds before the housing crash happened.
EG: What advantages are posed to investors by you being fee-based advisors compensated
based on a percentage of assets under management?
COC: Being a fee-only based advisor gives us the ability and incentive to choose the very best investments for our clients. The use of packaged products like mutual funds and annuities can be tempting for commission based advisors because of the loads (commissions) built into them, but we are able to invest our customer’s assets directly into stocks and bonds without having to charge a commission on the trades. We believe good advice cannot come from commissioned trades or products. We do not trade to get paid; we strive for real growth of our clients assets and are rewarded monetarily for doing so. When your account balance goes up, we benefit. Conversely,
when you lose money, so do we. It is in both of our best interests to be fee-only.
EG: How would you define a well-balanced, risk-adjusted, diversified portfolio?
COC: At O’Connor Portfolio Management, well-balanced means striving to own the
strongest individual stocks in the strongest sectors of the markets. When a stock becomes weak, we sell it and replace it, with a stronger position. For the strong positions, we let them compound without regard to size, as long as they remain strong. We believe this is the correct and best formula for compounding money and a well-balanced portfolio.
Traditional Wall Street might encourage one to buy the whole basket or index including many weak and a few strong positions. They may advise the opposite for balancing; called “re-balancing” wherein one should sell strength and buy weakness on a calendar time schedule, i.e.,
quarterly, semi-annually, or yearly.
Risk-adjusted for us, is done daily with our proprietary charts; we guide clients using technical analysis in order to determine when it is okay to be in the stock market and when it is not okay. This is the same method we used in the latter parts of 2007 and early 2008 that caused us to get out of stocks and into bonds before the crash in 2008.
A diversified portfolio consists of a proper allocation using several sectors and industries. We analyse all the sectors and rank them, strongest to weakest, and allocate assets accordingly, favouring the strong ones, and leaving out the weak. Then we allocate no more than 5% of the portfolio to any one stock, using as many strong stocks as necessary to achieve our weighting target.
EG: Where fundamental and technical analysis in concerned, how do you balance these two
strategic investment approaches?
COC: Fundamental analysis is good and necessary, and with respect to stocks that make up the
S&P500 specifically, there is a wealth of information already out there produced by intelligent and diligent analysts. Pure technicians believe that all available information on a particular stock is well known and reflected in the price of that stock. Pure technicians believe all you need is the chart. We believe that a combination of the two is the most prudent approach, using charts to identify winners and referring to the research to see if there are any red flags (or positives) that may affect the future performance of the stock.
A Diversified Portfolio
EG What impact do you think Artificial Intelligence, Cryptocurrencies and other
innovative technologies will have on the investment world in the next 5-10 years?
COC: Artificial Intelligence can be a real positive for the investment world if, and only if, the
digital advice is programmed correctly from the start. For instance, what if the algorithm used, favours, sell the strong and invest the proceeds into the underperformers. This is a common asset allocation strategy by Nobel Prize winner Harry Markowitz, which many software programs are using. We do not believe that money can compound efficiently in this way. We favour instead, Albert Einstein, and understand that money compounds more efficiently if you let the winners run and sell the losers.
Cryptocurrencies may be just another “product” for some; O’Connor Portfolio Management does not use products. We strive to buy great individual companies for our clients, with the objective to build a solid investment portfolio that will grow over time.
EG: How may the transition from LIBOR in 2021 affect derivatives and the global financial
markets, and are there ways in which investors may take advantage here?
COC: If LIBOR is replaced by a new interest rate benchmark such as the Secured Overnight
Financing Rate (SOFR), then it follows that the balance sheets of the most affected will be those that have to float new futures, swaps and loans related to the SOFR to gradually displace the same LIBOR referenced contracts. CME Group, (CME) one of the world’s largest futures and swaps exchanges launched a SOFR referencing futures contract last year. The stock outperformed through November, 2018, then sold off in December, 2018 like most U.S. stocks. What is significant, though, is that there was no January, February, March 2019 rally in CME stock. How the average investor might take advantage here, is to steer clear of banks, futures and swaps exchange stocks.
EG: In the movie The Big Short (2016) investors successfully bet against the housing market,
having determined prevailing trends in advance of the Great Recession. What future macroeconomic trends do you see as opportunities for investors to capitalise on?
COC: At some point the national debt will become an issue. The current path rate of spending is
alarming and if not addressed in some meaningful fashion, the debt “bubble” will burst. It has been an issue for many years and the current consensus seems to be “It’s not a problem until it’s a problem”. US debt has been downgraded once with little consequence, but at some point the world will demand a higher rate for US debt.
EG: With over 26 years experience in the financial sector, what in your opinion- characterises
a great portfolio manager?
COC: A great portfolio manager understands how money compounds most efficiently and has
a definite written plan of employing strategies which do exactly that. A great portfolio manager needs to feel the pulse of the market and be willing to do the work to change the plan as the markets change. However, in the end, it is more about compounding money strategies than market fluctuations.
EG: Are there any unique strategies that may be deployed to maximise profitability in an era
of Negative Interest Rate Policy (NIRP)?
COC: The expected results of negative rates were to increase spending and stimulate
economies, but the actual result may have been to increase demand for risk assets, and in particular, assets that provide a higher level of income such as REITS, Utilities, Consumer Staples, and High Yield Bonds. Overall equity prices have not responded as intended some will argue, because banks have been hurt to a large degree and they make up a large portion of the indices. As the “experiment” continues, perhaps bonds and more likely, bond market equivalents, to appreciate.
EG: If you were Secretary of the Treasury acting in an advisory capacity to the Trump
Administration, what three core wealth generation strategies would you deploy to ensure a prosperous economy for all?
COC: Clients generally benefit from pro growth strategies. Any policy that would assist
individual investors in appreciating their capital and retaining their wealth would be something that O’Connor Portfolio Management would welcome.
EG: How did your rigorous financial training prepare you to succeed in the higher echelons
of portfolio management and finance today?
COC: Learning the textbook strategies for managing money are important, but understanding the
ebbs and flows of the markets in the real world, may be more so. This is where experience becomes invaluable. Navigating different markets over the years is how a manager/financial advisor becomes seasoned and more of an asset to the client. Our combined 50 years doing just that, has made our services invaluable to our clients.
EG: As a multi-award winning firm that skilfully navigated the 2008 financial crisis, what is
the secret to your success?
COC: A detailed, thoughtful, investment approach regarding how much money compounds,
combined with a laser focus on the success of the individual client is our recipe. EG
Catherine O' Connor
Focus on compounding; ignore both market and personal distractions.
Incorporating flexibility into your strategy is essential.
Success of the client ensures profitability.
Catherine O' Connor
2019 130% Increase in Assets under Management
2016 Automated Proprietary Technology for Individual Portfolio Management
2013 Left major US firm to open O’Connor Portfolio Management, LLC.
2012 Developed Proprietary Technology for Individual Portfolio Management.
2008 Purchased Investment REO from failing Bank.
O’ Connor Portfolio Management, LLC is an award-winning wealth management advisory firm headquartered in Tampa, Florida. As of 2019 the firm has seen a significant 130% increase in AUM. For further information about O’ Connor Portfolio Management, please visit: www.OConnorPortfolioManagement.com