About 35 years ago, a couple of Harvard professors wrote a book about negotiation titled, “Getting to Yes.” It was a best-seller and has been in print ever since, getting updated in 1991 and again in 2012.
The popular success of the book made its title something of a catchphrase, and it wasn’t long before sales people were asking prospects how they could “get to yes” in closing deals.
This came to mind recently when I received an e-mail from a prospective investor interested in the Crabtree Technology portfolio. I’m re-printing it here, edited very slightly for spelling and clarity:
I just checked out your Crabtree Technology Investment on Interactive Brokers Asset Management and am considering investing in it. But I wanted to get some feedback from you before I proceed. Below are some concerns I have.
Is this a good time to invest in your offering considering the stock market is very frothy? Especially Tech! Also, in the last 30 days your investment has turned red adding to my concerns on whether to wait a bit.
Is there a possibility of a correction in the market (I know this is hard to answer but should we wait for one anyway?)
I am looking for short-medium term investment not super long term (I might need money in 6 months or so). Is your offering good for that? Can I talk to you for half hour or so to discuss more about your offering?”
It’s frustrating to get an inquiry like this because after all, I’m in business for a reason and who doesn’t want another client? But it’s immediately clear that encouraging this person to invest in the Crabtree Technology portfolio would be a huge mistake. I’ll parse the second paragraph to explain why.
“Is this a good time to invest in your offering considering the stock market is very frothy? Especially Tech! Also, in the last 30 days your investment has turned red adding to my concerns on whether to wait a bit.”
That is, investors who are “waiting for a pullback” frequently mis-time the market because, well, a pullback might be happening merely because the whole market is going down, and investors are understandably reluctant to invest in a market that’s falling.
For the record, we don’t time the market at Crabtree; we simply rebalance the portfolio once every 90 days based on company fundamentals without any consideration of recent stock price or market movements.
The prospect also notes that at the time of his email, the Crabtree Technology portfolio had declined over the prior month.
This is actually quite common: since starting with Interactive Brokers Asset Management in September 2011, the Crabtree portfolio has had 51 up months and 24 down months. (For comparison, the S&P 500 had 55 up months and only 20 down over the same period.)
But as those legal disclaimers always remind you, past performance (up or down) is no indication or guarantee of future results.
Which is one reason why we manage the portfolio with three- and five-year periods in mind. A month? In my view, it’s like the blink of an eye.
“Is there a possibility of a correction in the market (I know this is hard to answer but should we wait for one anyway?)”
There is always a possibility of a correction, but if I could predict them, I’d be driving a fine Italian sports car and not a Volkswagen Golf with 121,000 miles on it.
In this case, the prospect doesn’t seem to realize it is possible to outperform the market not only by going up more than the market over a period of time, but also by going down less.
And by being fully invested, he would capture 100% of any market rebound…or downturn. After all, you don’t know a correction is over until…well after it’s over.
“I am looking for short-medium term investment not super long term (I might need money in 6 months or so). Is your offering good for that?”
This is where the prospect fully reveals his mindset: he’s actually talking about trading, not investing. He seems confident he’ll find an investment product that is guaranteed or at least highly likely to provide a positive return over a time frame of his choosing.
I admire his optimism but that is not only impossible with my product, and in my view it’s not possible with pretty much any stock-based investment vehicle. The closest he’ll come to a guaranteed return? How about a Certificate of Deposit available from his local bank?
So I wrote back to the prospect.
“Given your goals (‘looking for a short-medium term investment…might need money in 6 months or so’) I do not think Crabtree is for you.”
He didn’t write back.
I looked up the prospect on LinkedIn and learned he is an engineer at a Silicon Valley company. And it was smart of him to ask questions about the suitability of the investment – something more people should do.
But doing homework on an investment isn’t just a box to check. It’s a learning process. And sometimes you learn the answer is “no.”
Crabtree Asset Management invests in growing technology companies. Barry Randall is the firm's founder and chief investment officer. He has more than 20 years of professional investing experience.
Barry spent five years as a technology stock analyst and 10 more years managing mutual funds that focused on small-cap and technology stocks. He has experience managing mutual funds and separately managed accounts as large as $650 million. Prior to earning his MBA in 1993, he spent six years as a professional computer programmer.
Barry earned a Wall Street Journal 'Category King' award for his co-management of a small cap mutual fund in 2006.
As of September 2017, Morningstar rated the Crabtree Multi-Cap Technology composite, of which the strategy offered at Covestor is a component, as having Four Stars for trailing 3-year, trailing 5-year and Overall
Barry has been quoted regularly in Forbes, US News & World Report, TheStreet.com and E-Commerce Times. He has appeared on CNBC, Bloomberg TV and Fox Business News.
Crabtree Asset Management LLC was founded in 2008 and is headquartered in Saint Paul, Minnesota.