Through my years in the investment management business, first as an analyst, then as a trader, a portfolio manager and finally a Chief Investment Officer, my perspective has matured and my approach toward managing pools of assets and people has become more holistic. This letter describes the philosophy that runs through Winthrop Capital Management,  our investment process and our approach toward the business of investment management.

Winthrop Capital Management – Our Team Approach

In all we do, we strive for a level of excellence that is extremely high. We expect a lot of ourselves and we set our goals high. Our relentless pursuit of excellence gives our compass direction and defines the culture of our company. We look for talented employees that share our passion for constant improvement and excellence. We hold our vendors and our sales coverage to this same standard. And, we work together as a team.

There is danger in maintaining this type of culture. As we pursue excellence through intuitive research, trade execution, portfolio performance, client materials, and a disciplined portfolio structure, we run the risk of sacrificing relationships to complete the task. We understand that every person is wired differently and because of the difference, we all process information in different ways. I know that I am wired to take responsibility, to constantly strive to do things better, to analyze and learn how things work, and to develop strategies that achieve the desired goals. As a result, one of my gifts is to take something that could be simple and make it more complicated than it needs to be. Over the years, my coworkers have pointed out that I am not wired with a lot of empathy and harmony. I have learned, painfully, that the pursuit of excellence in an environment without boundaries may result in damaged relationships and hurt feelings.

As a result of this constant push toward excellence, conflict is a part of our organization. I believe that conflict is a part of every healthy organization. At Winthrop Capital Management, all employees are expected to have opinions that are well reasoned and researched. In our investment process, there is no hierarchy. The most junior level person can challenge anyone’s opinion. Early in my career, my boss at Conseco, Walter Kirkbride, taught me the value of independent thinking. Walt always wanted to hear what people thought on every topic, whether it was a specific security, an industry, one of our sales coverage, or something as tangible as a car. He taught me to see the value in divergent views. I believe it is truly a gift to work alongside outstanding people, regardless of their race, their background, their sex or their religion and listen to their individual opinion as it differs from mine.

However, in a professional environment for an employee to speak their mind without retribution or hurting someone’s feelings is often difficult. We use assessment tools to help us understand how every employee is wired and how they process information. Learned behaviors are often difficult to overcome. In our company, we strive to over communicate and we encourage each other. I’ve learned when things are not being brought up for discussion, they are often being neglected. Sometimes we make mistakes. I believe that in much of what we do, we start with the premise that we will be wrong. But, we learn through mistakes. We improve. We grow individually and collectively through the journey. And, we celebrate our achievements.

There are times when challenging a person’s view can turn into criticism. In all of this, we strive to turn the process of challenging ideas into a positive, constructive aspect of our culture instead of something that is destructive. For this reason, Winthrop Capital Management is not the right place for everyone. We know that we can’t change how a person is wired and we wouldn’t want to. The pursuit of excellence on behalf of our clients will always include interpersonal conflict; if it does not, we have become complacent and intellectually lazy.  

In this culture, the true joy is in the journey to constantly strive for excellence, not in the achievement. Our team is complimented by employees who share that view. Personal ego, monetary rewards, and status all take a back seat to the single goal of striving for excellence.

The Investment Process

Our philosophy and culture directly impacts our approach toward managing investment portfolios. In managing a portfolio of publicly traded securities, we believe that you can only take what the market is willing to give you. For this reason, we emphasize a thorough, independent view of the economy and the capital markets. We publish our Economic and Capital Market Outlook quarterly and strive to look past the obvious in our assessment of growth and risk. Yet, translating economic activity into investment strategies is only part of the puzzle of portfolio management.

Risk management is an important part of managing an investment portfolio. It is not enough to simply diversify a portfolio and expect it to outperform. It is absolutely critical that your advisor or consultant have an independent view on the valuation of every market and security in which they allocate and invest. In our investment process, every security must fit into one of four categories in order to for it to be considered for investment. This ensures that every security has an objective within our investment strategy. Sadly, I’ve met too many financial professionals who believe that asset allocation is the single step in managing a portfolio. As a portfolio manager, you buy your portfolio every day, not just at the end of the month or the end of the quarter. Asset allocation is an important step in a risk management process, not the only step. For this reason, we publish Risk Management + Asset Allocation each quarter with our view on the valuation of all of the major markets in which we invest.

 The Business of Investment Management

As a registered investment advisor, we have a fiduciary standard of care for all our clients. That means we take responsibility for our recommendations and decisions. We put the interests of our clients first and we operate at the highest ethical standards outlined by the Institute of Chartered Financial Analysts.

Over the past few years, I have become more cynical on the investment business. As an industry, we have become more product-centric. We try to sell products to our clients instead of developing thoughtful investment strategies that are designed to help meet their objectives. In many cases investment management fees are too high and we cram additional fees into the products we now sell.

In my opinion, most people cannot tell the difference between a portfolio manager, a broker, a consultant and an investment advisor. We have spent more time as an industry trying to teach our clients the vocabulary of Modern Portfolio Theory instead of listening to what they really want. As an industry we need to stop perpetuating bad practices that are based on flawed assumptions and help clients think through realistic objectives and risk management. For example, there is no rule that the equity market always goes up over long time frames, yet it is an assumption in most asset allocation and portfolio simulation exercises. In my work with boards of foundations, endowments and pension funds, risk is not always defined as the variance of returns. If you listen carefully, it is often defined as not hitting their spending target. We need to equip these individuals with better tools to assess the real value and risks in their portfolios.

One of the travesties that exist in the investment management business is the perpetuation of the belief that investment consultants have a different fiduciary duty to the client than money managers. As a Chief Investment Officer, I philosophically approach every client as if it was my sole employer and I was working alongside staff. We will spend as much time with our clients as required to help educate the individual, the staff, the board and the investment committee on issues related to portfolio management, risk management and board governance. Fiduciary duty is not partitioned into specific tasks and areas of responsibility.

It is the compilation of the people, the process in which we build and manage portfolios and the care with which we work with our clients and constituents that provides a unique experience working with us. I am confidant that we will continue to evolve as a firm, but I expect that our core philosophy will remain constant.