"Most Portfolios Are A Collection
of Exceptions and Distractions"

In the early 80’s I was a pension fund manager for a large multinational oil company. I did not manage stocks or bonds, but rather I managed the managers who bought and sold the stocks and bonds.

I designed our asset allocation strategy, measured and monitored our stable of investment managers, researched new investment managers and investment strategies, and managed our funding and payments. I met with our 20 investment managers regularly to review our account status and understand their outlooks and its impact on our account.

One of my favorite managers was Dr. Harold Ehrlich, Chairman and Chief Investment Officer of Bernstein McCauley, a well known institutional manager of bonds. He is fabulously successful and fabulously wealthy, and now advises wealthy American families and foundations.

He is a precise, dapper, and exquisite man, full of delightful energy and bon homme. It always took my full attention and concentration to be in the company of this giant of capital market understanding and wisdom. He was extraordinarily generous with his knowledge and patient with my pestering.

I remember one of our meetings like it was yesterday. We were having lunch at the Plaza in NYC. I don’t remember the context, although undoubtedly it was about the markets, but he told me, “Most portfolios are a collection of exceptions and distractions”. For some reason this phrase stuck with me and I returned to it often over the following months and years.

Have you ever wondered how professional money managers consistently beat the market? It’s simple. They have a clearly stated investment strategy with specific investment objectives, and they faithfully execute their strategy no matter what the circumstances or environment. There are hundreds of examples to illustrate this point. These characteristics are common to every successful professional manager I know, and I know hundreds.

What Dr. Erhlich was really describing was the consequences of failing to properly and professionally manage an investment portfolio. You see, almost any investment strategy, clearly outlined with specific and precise objectives and faithfully executed, will outperform any index or benchmark.

As I would come across a disorganized portfolio of one of our managers, which I found especially common in London, I would think of Dr. Ehrlich’s description. Often, during my conversation with the portfolio manager about individual holdings in our portfolio, I would say to myself that investment adds nothing to the portfolio, and is just another distraction. They need to sell it.

I began to look for a unifying investment theme in every portfolio. I asked myself if there was a logical structure and cohesive thread running through all of the holdings of our portfolio. And were our holdings consistent with the manager’s outlook and objective?

Many times, in our portfolios managed by firms such as Jennison Associates, MacKay Shields, Bernstein McCauley, or R.C Brown the investment theme was clear and the portfolios were brilliantly constructed.

Many others were not. I had to conclude we owned another portfolio of “exceptions and distractions”. It did not matter what their performance was. It could have been terrific.

These types of managers allowed themselves to be tossed about by all the currents in the capital markets. The result was it impossible to manage this manager. It was also impossible to know if our investment purpose would be achieved. They were terminated.

Panhandle Portfolios Model Portfolio a simple, income oriented investment strategy. Our bedrock principals are clear; we buy sustainable high income investments. When an investment violates one or more of our rules, it is sold.

Will all of our investments be successful? No of course not. I have made mistakes and I will make more, but I have not and will not violate or abandon our investment strategy. We have a specific range of expected performance so we can measure ourselves, which we do at the end of every month.

What Dr. Erhlich was describing was the result of management failures. A collection of exceptions and distractions can never outperform the markets over time. It may be “hot” today, but it will not last.

I have seen the consequences of these management failures. I assure you the Model Portfolio is not one of them. Panhandle Portfolio has a clearly articulated investment strategy faithfully executed by a trained and very experienced professional money manager. The result is a high income portfolio that will achieve superior performance over time.

Ask yourself these questions about your own portfolio. You may find, like I did many years ago, your portfolio needs a clearer investment objective or theme. Make sure your portfolio is not full of “exceptions and distractions”.

May you live long and prosper,

Mike Williams, CFA

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