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Sullivan's Market $ense

Brian B. Sullivan, CFA, President and Chief Investment Officer, Regions Investment Management

May 4, 2015

A column to help investors gain perspective on today's market noise

Are you a Crock Pot?

I like cooking in a crock pot.  When you slow cook in a crock pot the culinary techniques are simple.  Chop some ingredients, add some ingredients and add some seasoning; turn on the crock pot and enjoy your day.  Dinner will be ready when you get back and the house will smell great.  There is no rue to make, no turning half way through, no whipping until it just peaks or mixing until it only has a few lumps.  All of the ambiguity is gone.  Put stuff in, cook a long time and enjoy.  What could be easier?

Sometimes though, I do not have all day.  So, I turn to the microwave.  A microwave is like using a backhoe rather than a shovel.  It is powerful, gets the job done quickly but it is easy to ruin your food.  Cooking well in a microwave requires constant attention and good knowledge of cooking times.  Otherwise your dinner will be dry, boiled over or half cooked and half raw.  Microwaving can be a delicate procedure.

A crock pot style investor is one who spends a good amount of time up front working on their long term goals and planning their investment strategy.  When ready, they put their plan to work by building their portfolio and at that point, they leave it alone.  They might come back every once in a while and reassure themselves that everything is going well but they don’t feel the need to hover over the portfolio.  If called for, they might make a minor adjustment.

Microwave style investors are frenetic, constantly checking and changing.  They have built a portfolio that they aren’t sure of.  They have built a portfolio that they hope will do well over the next several weeks or months, but not decades.  Regular, major changes will be required to keep this portfolio headed in the right direction.

Most investors don’t have the time, skills or tools to be good microwave investors.  This is the realm of Wall Street techies with vast skills, technology and staff.  They are hard to beat.  However, crock pot investing, like cooking, is pretty easy.  Plan well, execute once and make small modifications infrequently. 

Major modifications to a crock pot portfolio are driven by changes in goals.  Goal changing events, such as a death, birth or sickness may mean it is time to change the recipe; much like unexpected guests might cause you to add more vegetables or water to your pot.

Advantages to being a crock pot investor are numerous:

  • Lower Turnover leading to:
    • Lower trading costs
    • Lower commissions
    • Lower taxes from realized gains
  • Better clarity regarding long term expectations
  • Less confusion
  • Less angst

So here is my suggestion… Be a crock pot, not a microwave.

Crock Pot brand is a registered product by Sunbeam Products, Inc doing business as Jarden Consumer Solutions.

(c) Regions Bank, Member FDIC. The foregoing represents the opinions of the author, Brian Sullivan, and not necessarily those of Regions Bank or Regions Investment Management, Inc. (RIM). RIM provides commentary to clients of Regions Bank, an affiliated company wholly owned by Regions Financial Corporation. The information contained in this report is based on sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of the security, company or industry involved. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This report is designed to provide commentary on market strategy and the opinions expressed reflect the judgment of the author as of the date of publication and are subject to change without notice. RIM assumes no responsibility or liability for any loss that may directly or indirectly result from the use of such information by you or any other person. Investment advisory services are offered through RIM, a Registered Investment Adviser. RIM is wholly owned by RFC Financial Services Holding LLC, which in turn, is a wholly owned subsidiary of Regions Financial Corporation.

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