Exchange is coming February 5–8, so Evan Harp is talking with some of the advisors who will be there. Today’s edition is focused on Douglas Walters of Strategic Financial Services.
Evan Harp: When and how did your practice begin?
Douglas Walters: Strategic Financial Services predates me by quite a few years. Our roots go back over 40 years to our founding by Alan Leist Jr. He recognized a gap in the industry that could be filled by offering both goal-based investment management and financial planning. A revolutionary approach at the time. I joined the firm nearly nine years ago and now head our Solutions group, which encompasses our centralized Investment and Financial Planning teams.
Evan Harp: What is your investment philosophy?
Douglas Walters: Great question, Evan. We are evidence-based investors. With my engineering background, this is a natural fit. I much prefer focusing on science over speculation. I think of our job as giving clients the right level of risk while using evidence to tip the odds in their favor at every step of the process. This starts with placing multi-factor ETFs at the core. We focus on factors that have a history of outperformance versus the broader market and make them the centerpiece of our portfolios. We tactically bias the portfolio towards factors where history indicates there is a current opportunity. No speculation, just hard facts. The evidence-based approach extends to our operations as well. For example, we institute opportunistic rebalancing. Research shows we can boost performance for our clients by setting wide asset allocation corridors but checking often for corridor breaches. So, we are looking at every asset in every modeled portfolio weekly for these surgical rebalancing opportunities.
Evan Harp: What is the biggest obstacle you had to overcome and how did you do it?
Douglas Walters: Perhaps a cheeky answer, but the biggest obstacle any of us face as investors are ourselves. The human brain is not wired well for investing. So many of the wonderful instinctual traits we have that helped us survive and thrive as a species work against us as investors. A great example is action bias. An automatic impulse to act was essential to survival thousands of years ago. For investors, often the best course of action is staying put. And that can be really hard to do. I’m sure all advisors have fielded calls from the nervous client wanting to move money in and out of the market. Unless they are lucky, they are going to damage their long-term returns. That is action bias at play. Overcoming these challenges starts with education. If you understand the behavior pitfalls in finance, you can not only avoid them but potentially capitalize on them. It all comes back to following the evidence.
Evan Harp: Are there any types of ETFs that are appealing to you right now?
Douglas Walters: Given our investment approach, you will not be surprised to hear we are primarily focused on factor-based ETFs. We are currently most interested in single-factor funds, particularly those with momentum and value mandates.
Evan Harp: Exchange is slated for February 5th – 8th. What do you think the biggest story in the market will be at that time?
Douglas Walters: You are asking me to predict, which my colleagues would get a kick out of. I’m always saying, “we don’t predict, we prepare!” I will humor you. The start of 2023 is likely to continue to be about inflation and the Fed, so with the next Fed rate decision out just a few days before the event, that has the potential to dominate sentiment.
Evan Harp: Who is another financial advisor that inspires you and why?
Douglas Walters: That’s a tough question. We take our inspiration from many sources. If a firm is talking genuinely and intelligently about factors and evidence-based investing, we respect that. Savant Wealth Management does a good job on this front. AQR is an example on the management side as well as Dimensional. For the planning side of our business, we also appreciate the academic rigor that Michael Kitces applies.
To learn more about Exchange and register, please visit the Exchange website.
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