Carolinas Investment Consulting // Winter 2014 // Volume VII // The Consultant

Greetings From George

We trust everyone is off to a great start in 2014, although it has already proven to be an eventful beginning for the financial markets. We entered 2014 with a sense of excitement and caution.

Our excitement came from the success in most of the equity capital markets in 2013. The U.S. and many of the international markets experienced strong performances, such as Japan (+57%), although returns in Emerging Markets were slightly negative for the year despite having been the top pick of many Wall Street strategists back in January of 2013.

Source: Zephyr StyleADVISOR, 6/30/13

As we look into 2014, we are optimistic with a recovering economy, healthy corporate balance sheets, and improving investor sentiment, all of which are positive indicators for U.S. equity markets long term. However, the current pullback in equities worldwide and corresponding rally in bonds reinforces our view that we also must be cautious and focus on the risk management of our portfolios. After 2013’s steady climb, the first six weeks of 2014 remind us that we have had more volatility in the last 13 years than in the past five decades combined.

As for Carolinas Investment Consulting, 2013 was also a wonderful year. We added depth to our financial planning and operations areas, continuing our focus on serving you. Let me introduce to you:

  • Walker Shelton, CFP®, joining us from Vanguard to augment our financial planning.
  • Joyce Cmiel joining us as a Relationship Manager. Previously she worked at both Merrill Lynch and A.G. Edwards.
  • Scott Gill, our new Operations Manager, coming to us from Wells Fargo, and beforehand J.P. Morgan and E*Trade.

Please join me in welcoming these individuals to our firm.

There were also exciting events for our CIC Family. Christy and Byron Sackett were blessed with twins Kendall and Cooper in May, and Chris Grogan was married to Christie Stump in April. Oliver Cross, our Director of Research, was quoted in the New York Times and my partner Dave Perkins was elected President of the Charlotte Chapter of The Financial Planning Association. We share in the joys and achievements of our team.

While having entered a new year celebrating successes on many fronts, we look back to times when volatility, fear and uncertainty prevailed in the markets. Then, as now, we must focus on building portfolios to manage market risk. Those are the times when we can celebrate success.

All the best,

What are You Feeling, Fear or Greed?

Feeling a tad bit greedy? Why shouldn’t you? The U.S. stock market just returned 30% in 2013 and is up 170%+ (at time of writing) since the depths of the financial crisis in 2009. Economic data around the globe has been improving along with rising consumer confidence and investor sentiment. “According to a 2013 market outlook survey recently released by CFA Institute, 71% of all respondents now believe that equities will be the best performing asset class for 2014; this compares with 54% at the end of 2012.”1 Even perma-bear David Rosenberg capitulated and turned bullish on the stock market in the summer of 2013. More recently, renowned doomsayer Noriel Roubini – “Dr. Doom” – announced a more bullish outlook for 2014. If Dr. Doom is turning more bullish, why shouldn’t you?

On the other hand, maybe you are fearful of what the Fed’s “tapering” may do to the bond market – or the stock market, for that matter? It’s quite possible you’ve read somewhere that the stock market is overvalued – 2013 Nobel Prize winner Robert Shiller’s famed “Shiller PE” indicates the markets are very expensive compared to historical levels – or you’ve come across one of the many headlines about the bond bubble. Or maybe you read the holiday issue of The Economist and came across the uncomfortable parallels between today and 1914, shortly before the onset of World War I. Fearful? It’s understandable.


Perhaps even more likely, you have conflicting emotions about the market – some greed and some fear. A recent investment newsletter from a respected money manager described this investment conundrum as follows, “It appears to us that many market participants are quite dissonant regarding how they should be positioned, wrestling with the competing sentiments: ‘I can’t afford to miss a rally, but I sure can’t afford to get killed if things go in the other direction because none of this is real.'”2

Recognizing this difficulty investors face in handling their emotions, Hersh Shefrin published Beyond Fear and Greed in which he states, “People are imperfect processors of information and are often subject to bias, error, and perceptual illusions.” This work launched an entirely new field of economic theory known as behavioral finance, popularized by the likes of bestselling authors, Daniel Kahneman, Thinking, Fast and Slow, and Duke University’s Dan Ariely, Predictably Irrational: The Hidden Forces that Shape Our Decisions.

Howard Marks, whom Barron’s named “Guru to the Stars” in a 2013 article, has written extensively about investor attitudes and behavior in his memos over the last 20 years. Marks sums up the topic of fear and greed by describing it as follows, “When things are going well and prices are high, investors rush to buy, forgetting all prudence. Then, when there’s chaos all around and assets are on the bargain counter, they lose all willingness to bear risk and rush to sell. And it will ever be so.”

As we emphasized one year ago, investors would be much better suited to create a portfolio based on their needs, goals, time horizon, and risk tolerance and stick with the plan despite whatever fear or greed they may be feeling in the moment. Carl Richards, NY Times writer, advised in his 2010 article titled How Fear and Greed Kill Returns, “To do otherwise would be following a pattern that has proven to be extraordinarily painful.”3 Our role is to help you disentangle the fear from the greed.

1 “The Challenges of Year-End Forecasting” – Research Affiliates (December 2013)

A Different Kind of Relationship

In the post-Bernie Madoff era, the financial advisor industry continues to be challenged by investor safety concerns. Despite increased regulations from FINRA and the SEC, financial advisors far too often find themselves in embarrassing headlines. Hollywood’s new release, “The Wolf of Wall Street”, portrays one of the most disgusting abusers in retail brokerage history, once again bringing the wrong kind of attention.

As a result, investors have been gravitating to independent advisors and to dually registered (Registered Investment Advisor and Broker-Dealer) firms largely because of their fiduciary responsibility to act in investors’ best interests. From 2004 – 2012, RIAs were the only segment of financial advice that expanded, according to a Cogent Research study.


Most investors are familiar with the traditional Broker-Dealer model, but we are often asked…What makes a RIA firm different, and what advantages does a RIA offer me? A registered investment advisor is a professional advisory firm that offers personalized financial advice to its clients. Many independent RIAs, including CIC, are owned by the individual advisors who run them.

George founded Carolinas Investment Consulting in 2001 as a dually registered firm primarily for the independence. He felt serving clients under a dual structure would greatly enhance CIC’s flexibility to manage complex portfolios and address unique needs that increasingly require highly customized investment management strategy and consultation.

Today CIC has grown to 24 associates attracting other national firm veterans who also felt an independent boutique structure, with a broad range of investment and financial planning advisory services, enabled better service to their clients.

CIC strives to deliver these benefits by:

  • Giving advice based on what’s best for you: Offering independent, unbiased investment advice based exclusively on merit and consistency with your overall financial plan.
  • Building a deeper relationship: Finding solutions that are closely aligned with your needs and objectives – which often take regular, ongoing interactions.
  • Giving advice for your complex needs: Serving your comprehensive planning and financial needs by investing in a rich diversity of specializations, expertise and affiliations. These resources assist us in tailoring solutions for your unique needs.
  • Safeguarding your money: Using institutional custodians such as First Clearing Corp. and Charles Schwab to hold and safeguard client assets. These custodians provide important infrastructure services such as executing trades and preparing monthly statements that enable us to focus on providing the best investment and planning advice possible.

Your Digital Estate Plan

You and your spouse have recently met with your estate attorney. Wills have been drafted. Trusts have been created. Powers of attorney have been appointed. You’re confident you have prepared your family for that time when you are no longer around.

But where do your digital affairs fall within this estate plan? In this all-encompassing electronic age, digital assets are a frequently overlooked item. According to a Microsoft study in 2007, the average online user has 25 accounts requiring a password. Your digital estate consists of obvious financial websites such as bank, investment, and credit card online accounts. However, what about your social and business related password bearing accounts such as Email, Facebook, eBay, Amazon, iTunes, photo albums, and airline miles accounts?

What happens to all of these online accounts, profiles and assets when you pass? Who even knows about all of your online accounts? What kind of access do you want your family to have? These are often questions that arise as a reaction to a life event versus in preparation for one.

Consider these 3 tips for tackling your digital estate:

  • Tip #1: Create an inventory of your online accounts and profiles with instruction on how to access. Then develop a routine for updating your inventory documenting all changes when creating online accounts, changing passwords, or shutting down accounts. Your inventory is only as useful as the accuracy of the information it contains.
  • Tip #2: Find a safe, trusted place to store this information. It contains a variety of financial and personal information about you and your family. Consider speaking with your CIC Consultant about storing this information in your Family Organizer, a safety deposit box or online safety vault.
  • Tip #3: Work with your estate attorney to put a plan in writing detailing your wishes. There may not be a “one size fits all” method. You must deal with each account type individually as bound by its Terms and Conditions of Use, The Stored Communications Act of 1986, and various states’ legislation.

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R. Wade Austin
Oliver R. Cross III
R. Christopher Gammon, CFA, CFP®
Christopher K. Grogan
Thomas E. (Ted) Highsmith
David A. Perkins, J.D., CPA, CFP®
and George H. Edmiston, Jr., President & Founder

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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