A Unique Approach to Wealth Management

An Interview with Catherine O' Connor, CEO, O' Connor Portfolio Management

O ’Connor Portfolio Management, LLC is a “Five Star Professional” Firm (The Wall Street Journal) and was profiled in Forbes Magazine. In October, the firm was recognised in Wealth & Finance International Magazine’s 2018 Winners’ Review programme as the ‘Best Money Management Firm’ in Florida. We spoke with Catherine O’Connor, an Accredited Portfolio Management Adviser and Certified Financial Planner, to find out more about her company’s unique approach to wealth management.
 

EG: What separates you from your peers and competitors?

COC: At O’Connor Portfolio Management, LLC, we are intensely focused on compound interest and risk management. Compound interest means making interest on your interest or reinvesting dividends to buy more shares. Risk management involves technical analysis and studying the fundamentals. 

EG: Risk management has been a key focus of your wealth management practice from the start. Why is this so important?
 

COC: Risk management is critical to making money safely and efficiently in the financial markets. Say you bought a stock @ $100/share and you have no risk management plan. The stock price falls to $50/share. To get back to $100/share, you need the stock to rise in price by $50 which would be 100% increase from current price. A stock that declines 50% must increase 100% just to break even.
 

Then consider the efficiency of this strategy. While you were waiting for your loser to come back, you wasted time tying up that money that could have been used in a position with more potential. Lastly, consider the trauma and negativity that losing can instil in a person. We encourage clients to sell negative positions and turn that same money into a positive position. The cost of doing so is now lower than ever before.

EG: How do you help clients manage risk in their investment portfolios?

COC: In O’Connor’s experience, individual securities, such as stocks, bonds and REITs, are a much more effective way to achieve the growth and income her clients need than products like mutual funds, annuities, or managed money funds. In fact, we don’t use any products at all because we believe they are not in our clients’ best interests. By relying exclusively on individual securities, we are able to set the purchase price below the market price to reduce risk and perhaps make more money than someone who buys at the market price,” she says. “If you buy a mutual fund, you simply get the closing price of the day. And that is not good risk management.”
 

We use our own proprietary technology to manage risk and select which investments may be appropriate for an individual. One person’s money is not “thrown in” with another person’s money as each person has different goals and different entry times.
 

Then we set the purchase price below the market price, so that we can reduce risk and perhaps have the opportunity to make more money than a person who buys at the market price. 
 

Finally, we construct a “sell plan” to manage risk and improve an individual’s return. The “sell plans” were tremendously effective during the 2008 financial crisis; our clients did not suffer through the stock market crash that happened in September of 2008 through March of 2009.
 

We practice “let your winners run” and “sell the losers when the chart no longer shows a series of higher lows and higher highs”.  If you practice this year after year, the portfolio may get stronger and better over time. From a macro viewpoint, we would not be in stocks at all unless the chart of the S&P 500 shows a series of higher lows and higher highs. There are very clear warning signals when the stock market is breaking down.  When the charts illustrate this, we exit stocks in tranches and enter principal preservation strategies.

EG: Another important focus is compound interest, which is, making interest on your interest. How does this work and how does it benefit investors? 
 

COC: Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t …pays it”

To understand it, let us break down the components. There are three, (1) the amount of the investment, (2) the rate of return, and (3) time.  

Rate of return is determined by which equity you buy and at what price and how long you hold it. Our firm uses analytical charting to select which investments are of high enough quality to be considered in a client’s portfolio. We don’t advise buying the whole index; only the “good ones” in the index.
 

Then we only use “Buy Limit” orders placed below the market price. In this way, you may earn a better rate of return than a person who buys at the market and your risk may also be reduced. By letting the winners run, and selling a loser in a timely manner & replacing it with another potential winner, we can affect the time part of the compound interest equation.
 

Risk management and making compound interest go hand in hand; they are treated as an inseparable pair.  

EG: I’ve heard you refer to the “balanced or age based” model of investment management. What is this, and why do you advise against it? What do you advise instead?

COC: There are many management methods aimed at balancing risk and return. A typical division of balanced would be 50% stocks, 50% bonds; with the bond allocation becoming larger the older you are chronologically. The technique has endured many years with the most recent use in Robo-advisors or automated software programs using algorithms.

EG: Why do you advise against it?

COC: We have experienced that money cannot compound properly and efficiently using a balanced approach. One side is consistently “pulling” the other side down in rate of return and risk management is not efficient either. There is a teeter-totter effect.

EG: What do you advise instead?

COC: We use our own proprietary rules for risk management and compound interest.

EG: What, in your opinion, is the best way to determine the appropriate mix of stocks and bonds in an investment portfolio?

COC: The best way to determine what should go into an investment portfolio is by using charts because they are truly objective. A picture really is worth a thousand words.

EG: You don’t use financial products like mutual funds, annuities or managed money funds in your practice. Why not? What do you recommend instead, and why? 

COC: We recommend individual stocks, bonds, commodities, and real estate that meet our chart requirements. The orders are only Buy Limit, never market. Our firm works on fee only—if your money grows, as does our compensation. If your money declines, our fee declines as well.

EG: What professional experiences and credentials do your team members bring to the table?

COC: We are Accredited Portfolio Management Advisors (APMA) and Certified Financial Planners (CFP). Starting the business in 1992 on the equity side, adding a proprietary bond trader, Jeffrey Dolgos, from a well known firm who also started in 1992, we have over 52 years of financial experience. We continue to grow through referrals from our clients. In one family, we have advised four generations.

EG: What do you want to happen as a result of running this profile?
 

COC: We would like to educate investors on the subject of risk management and compound interest. For instance, if you buy a mutual fund or an annuity, you do not have an opportunity to choose the entry price. You simply get the closing price of the day. If the stock market is at an all time high, you may be buying at an all time high. This is not good risk management.
 

Regarding compound interest, a few years ago a very popular stock split 7:1. The dividend before the split was $0.47 and after the split is was also $0.47. Most dividends are paid out quarterly based on the number of shares owned. For example, suppose you owned 100 shares before the split; you would receive income of $47 per quarter.  After the split, your 100 shares turned into 700 shares, with income of $329 per quarter. Today the dividend is $.73 per share, so now your income would be $511 per quarter. Imagine the impact of reinvesting the dividends to buy more shares, which would then increase your income. This is the power of compound interest!”   EG