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After 15 years of managing money for clients, Tom White, Managing Partner of CAP Partners, looks back at his experience as an investment adviser. In this Q&A, Tom talks about the rewards and challenges of the job, which investment ideas worked and which didn't, what he learned during the Great Recession, and what advice he would have for someone looking to manage other people's money.

What has been the most enjoyable and rewarding part of your job as an investment adviser?

When I manage money for clients, I always view investments as merely a vehicle to help clients achieve their financial goals--whether it is retirement, paying for their kids' college educations or even buying a business. The reward to me is in seeing that we have managed their money well over the years, and that when the time arrives that they need the money for a goal, they are able to retire or send that child off to college or buy that business. It's a great feeling to know that you were a part of that success for your client.

What has been the most challenging part of managing money for clients?

As investment advisers, there is somewhat of a Catch-22 when you manage other people's money. There is an expectation that you make them money (over time). So, when you do, it's not a big deal, because that's what they hired you for. On the other hand, if you lose money, it is not easily forgotten. But that's just part of the job, and all investment advisers eventually learn to accept it.

The real challenge is in setting expectations with regards to how investments behave in the short term, and what the long term results should be. In the last 15 years, I have seen a wide range of expectations from clients on how they view their investments.

For example, during the late 1990s, it was not uncommon for clients to have expectations of annual returns of 15% or more on their investments. Yet, in 2009, clients' expectations were simply about not losing any money. I have learned that expectations are heavily influenced by the market environment. That's only natural because it's in the news and it can drive people's emotions.

My job then is keep clients focused on their financial goals and to remind them that the purpose of their investments is to achieve their financial goals, not just to make money or to preserve what they have.

What distinguishes your investment process and philosophy from other advisers?

The one thing I would say is that we allocate each client account or portfolio uniquely based on the client's investment experience, their investment objective, and the timeframe for those monies. There are no two accounts or portfolios that are alike based on what is owned or the percentages of each position in the account. To do this, we make sure that we focus on why the clients own each position in their account and what the purpose or objective for the account is.

The other important distinction is that we do not use secondary sources in our research. Many investment advisers subscribe to research services to help them make investment decisions. We go straight to the source when we conduct our research. In other words, I read the annual reports of the companies that we look to invest in. I visit the companies and attend their annual shareholder meetings. Just because we use primary sources does not mean that we always get it right. The point is that we do not make decisions based on someone else's interpretation or point of view.

You mentioned visiting companies and attending annual shareholder meetings. Would you share one such experience that was memorable to you?

The one that I enjoyed the most and will always remember was in 2009 when I attended the Berkshire Hathaway (BRK.B) annual shareholder meeting (or as Warren Buffett calls it, the "Woodstock for Capitalists"). We had owned shares of Berkshire in clients' accounts for several years at that point, but I loaded up on the shares in February of 2009 when it traded below book value. We still own the shares today in clients' accounts, and last I checked, we were up on average 114% in only four short years.

At that time, we had just gone through one of the most difficult economic periods in the U.S. the previous nine months. So, I wanted to hear what the "Oracle of Omaha" had to say about the market and the economy. Plus, as a professional investor, it is one of those things that is a must do at least once in your career.

Can you share a specific investment strategy you employed in the past that worked well?

I remember in the fall of 2008, the Belgian-Brazilian beverage company, InBev, made a bid for Anheuser-Busch (BUD), the maker of Budweiser. Many people thought that the merger would not go through, because there was no way that an iconic American brand such as Budweiser would ever be sold to a foreign company.

InBev's bid was $70 per share in cash. Three weeks before the merger was to close, Anheuser-Busch's stock was trading at around $60 per share. It was clear at the time that the market did not think this merger was going to happen. However, management was in favor of the merger, and the federal government was not going to step in to block it. So, I decided to buy the stock to employ an arbitrage strategy. If I was right, we would get $70 per share in cash. If I was wrong, and the merger did not go through, then we would simply own shares of a great company.

The merger did go through, and we were able to generate an almost 20% return for clients in three weeks. Merger-arbitrage is a rare strategy that we use, and the Anheuser-Busch/InBev merger was a special situation, but it worked for clients in this instance.

What has been your best investment?

As of today, I can say that Visa (V) has been the best investment we have ever made. This is not simply because we have more than tripled clients' money in Visa in less than five years, but that we were able to own the shares from day one when it became a public company.

Participating in Visa's IPO has a special meaning for me. First, because it was the largest IPO in the U.S., and still is as of today, which means that a lot of people wanted to get in on it. For CAP Partners, this small firm, to have gotten all the shares I requested for clients, I think is unheard of.

Second, doing research on a private company that is about to go public is more difficult than researching a public company since there is less information available to determine whether it is a good investment. To have gotten this right is a point of pride for me as an investment adviser.

What has been your worst investment?

Certainly not everything we touched turned into gold. In fact, there are a few candidates that come to mind. In the investment world, you could be wrong more often than you are right. The key is to never have anything that you are wrong about jeopardize the whole portfolio. The one that comes to mind the most is Citigroup (C).

I invested in Citigroup as early as 2004 at $48 per share. I liked the concept of the global multinational bank, where it was a retail bank, a commercial bank, and an investment bank all in one, and doing business in over 100 countries around the world. What I didn't see, like most people, were the underlying securities that they held off their balance sheet, which eventually led to their demise during the credit crisis.

The key principle in investments and managing money is to avoid at all cost a permanent loss of capital. I can say with confidence that we have never owned stock of a company that went bankrupt. This is how I define permanent loss. In Citigroup's case, it did not go bankrupt, but the U.S. government eventually rescued the company in 2009 and took a significant ownership of its shares. At that point, I decided to sell the stock. Unfortunately, by then the stock was trading at around $2 per share. On the other hand, Citigroup was never more than a 3% position in any one account. This is the reason we practice diversification.

What have you learned from your experience during the Great Recession of 2008-2009?

Prior to the credit crisis of 2008 & 2009, the other down market that I experienced as an investment professional was the internet crash of 2000-2002. At that time, it was more of a bear market and a recession in specific industries such as telecom and technology. But in 2008 & 2009, the recession affected all industries spanning the global market. There was essentially nowhere to hide.

Yet, the one thing I took away from that was that I didn't know what cheap was until March 2009. My definition of value when researching and pricing stocks to buy prior to 2008 was based on whether a security was cheaper than the overall market and its industry peers. I quickly learned that a discount can come in many forms, and in March of 2009, I found many bargains.

Fortunately, I recognized it right away and felt very much like a kid in a candy store. There were many companies to choose from whose stocks I never thought I would ever have a chance of buying. Today, we still own those same stocks and have only sold the gains to trim the fat, so to speak.

Can you share an interesting anecdote or story in your 15 years as an investment adviser?

One client story I will share has to do with the most unlikely of odds. I have a client that I began working with in 2002. When I started managing her money, we invested on Oct. 10, 2002, which was the bottom of the bear market of 2000-2002. Then again on March 9, 2009, we hit the bottom of the market during the credit crisis. Talk about "buying low"! It was not planned, and I certainly will not take credit for the incredible fortune of timing the bottom of the last two downturns, but I can say that I was there to witness it. That was pretty cool. I don't know too many advisers or investors that can say that. She's still a client to this day.

If you could give one piece of advice to another adviser in managing money for others, what would that be?

Think independently. In other words, do your homework and research on your own. Be able to identify quality versus junk. Know why you're buying a particular investment, and don't rely on someone else's opinion to validate whether you are right or not. The market will eventually tell you.

How does being an investment adviser compare to your role as a financial planner?

Clients are not going to reminisce with you 20 years from now about the great returns you produced for them in their portfolios. On the other hand, clients whom we helped to achieve their financial goals continue to talk about how thankful they are that we worked together.

For example, in 1999, we owned a fund in a client's account that returned 170% in one year. Fourteen years later, this same client and I don't really talk about it that much. But we do talk about how we worked together toward his retirement. This is where financial planning is more tangible to people's lives than investments, and I've been very fortunate to have great clients to work with.

*Past returns are no guarantee of future results.

Source: Tom White: A Look Back On 15 Years Of Managing Money