Risk Management a Balancing Act Between Clients’ Fear, Greed

Jim Blount and his 18 advisers at The Point Financial Group in Springdale should be getting a few extra Christmas cards from their clients this year.

While the stock market was in a tizzy this summer at the height of the credit crunch brought on by collapsing subprime real estate portfolios, The Point’s customers were sitting pretty.

Blount, the president and principal of the company, got his investors out of the market at the end of June, just before the Dow endured an 8.5 percent drop from mid-July to mid-August.

After the Dow tracked upward on the Federal Reserve decision in September to lower interest rates by half a point, Blount saw another dip coming and told his clients to cash out again.

Sure enough, the Dow average slipped another 5 percent from around 14,200 to around 13,500 in a little more than a week.

Historical trends, fundamental analysis and advanced software are all tools of risk management, but the essence of minimizing risk boils down to a simple concept, Blount said.

“People’s fear of being poor is greater than their desire to be rich,” he said.

With that in mind, Blount says he’s always advised his clients to take their returns when they can, “taking chips off the table” he called it, rather than allowing greed to take over and “letting it ride.”

“We were up 10 percent to 12 percent returns year-to-date and we knew there hadn’t been a 10 percent correction in more than three years,” Blount said of his firm’s perfect call on the Dow. “We didn’t know we were going to hit it dead on.”

Blount has made a few good calls over the years. He saved his clients the pain of the tech bubble bursting, telling them the 70 percent to 90 percent returns they were seeing were “insane.”

He also called the downturn following the terrorist attacks of Sept. 11, 2001 a significant investment opportunity because those who got their money in while the market was low have seen the Dow gain around 40 percent from less than 10,000 to its current level.

Blount, who has been an investment adviser for more than 14 years and founded The Point six years ago, said he sees three main areas of risk in the market: geopolitical circumstances, inflation and the ongoing credit crunch expected to last into 2008 as even more adjustable rate mortgages reset.

The rapid flow of information and electronic trading is also a new paradigm that adds to volatility.

Blount has 18 advisors working in offices in Springdale, Rogers, Tulsa and Harrison and is managing $202 million in assets this year. The firm is a part of Lincso/Private Ledger, the largest independent broker/dealer company in the nation.

There are two kinds of investors, Blount said: savers and retirees.

Volatility is good for people saving for retirement because it provides an opportunity for strong returns and bad for those counting on their investments to provide steady income.

For that reason, Blount said his firm tries to set up an income stream for retirees that will last at least 5 to 7 years initially.

“That way volatility doesn’t affect them at all,” he said.

With an uppercut of his fist into his open palm, Blount said the market will struggle to gain ground beyond 14,000.

“There is a lot of resistance,” he said. “It’s very hard to break through. There’s a lot going on around the world, so you have to be on top of your game and take your gains when you can get them.”