Bay Capital Wealth Management Process

You cannot manage a person’s portfolio, if you don’t understand the person first.
As part of understanding a person, we learn their history and the members of their family. We study their needs, their wants, their goals, their fears, and what keeps
them awake at night.

The investment management process begins with a “top-down” analysis of the economic cycle, the financial cycle, the commodity cycle, and the interplay between them. We reach out for the thoughts of other respected investment professionals but reach our own independent conclusions. This is a daily part of the process.

Then we analyze the “asset allocation” or how the portfolio is allocated between stocks, bonds, cash, and alternative investments. Numerous empirical studies have indicated that more than 90% of investment performance is a result of the proper allocation between these asset classes. Careful attention is also paid to the business cycle. If we expect weakening economic conditions, we recommend more defensive positions.

Further, we break down the asset classes by size or market capitalization. For example, how much of the stock allocation should be large companies, mid-size companies, and small companies. At different points of the business cycle, it makes a big difference.

Next, we study the sector allocation. For example, how much of the stocks should be in energy stocks versus healthcare stocks? Again, at different points in the business cycle, it makes a big difference.

You will find we don’t always discuss individual stocks, like stockbrokers, because those stocks can actually limit diversification. Normally, we prefer Exchange Traded Funds (ETFs), instead of individual stocks or mutual funds. They can provide much more targeted allocations, are more tax efficient than mutual funds, and are almost always cheaper. ETFs are preferred over individual stocks but not over individual bonds. Sometimes, we will engage a mutual fund for specialized exposure, such as small companies in the healthcare industry, as an example.

Most importantly, we are not stockbrokers. We receive no commissions and like to meet our clients often to discuss the portfolio. The client is the boss! If the client wants to do something we think is imprudent, we will advise against it, but the client is still the boss! We are their investment consultants. We have a fiduciary responsibility to always act in their best interest.

We also study their estate plan and their income tax plan, before making the investment proposal. If appropriate, we will recommend an estate planning attorney or tax accountant before accepting a client. We feel strongly that our investment performance should not be wasted due to poor estate tax or income tax planning.