“People live extraordinary lives of great meaning.” With Jason Hartman & Matt Hamilton

We certainly are living in unprecedented times. I refer to them as moments of truth. Personally, I have a deep faith and during times like this I cling to it. I focus on God and not on my circumstances. Often, I need to remind myself that He loves me without condition; He wants the best […]

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We certainly are living in unprecedented times. I refer to them as moments of truth. Personally, I have a deep faith and during times like this I cling to it. I focus on God and not on my circumstances. Often, I need to remind myself that He loves me without condition; He wants the best for me; He is in control and responsible for the outcome. And while things did not always turn out as I hope, looking back I found He was always faithful, and things worked out for my good.

As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewing Matt Hamilton, the Chairman and CEO of Hamilton Capital. Headquartered in Columbus, Ohio, it serves a national clientele of private individuals and institutional investors.

The firm is known for its dynamic investment process, which was Hamilton’s brainchild. Heavily anchored in forward-looking research, it proactively adjusts the asset classes in its portfolios as new fundamental investment conditions change their prospective returns. This approach is distinctive among financial advisors who generally set a long-term asset allocation and passively hold it through all markets.

Hamilton Capital’s dynamic investment process is a principal reason why managed assets have organically grown by nearly 18%/year since the firm’s founding in 1997. This has translated into many national recognitions including being regularly named as member of the Financial Times 300, an annual list of the “industry’s elite advisors.” It has also earned Hamilton individual recognition as one of the nation’s “100 Great Financial Planners” by Mutual Funds Magazine who described him as “not getting caught up in the emotions of Wall Street” and “not following the market herd.”

Thank you for doing this with us! Before we dig in, our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

Ientered the finance industry out of college, so there really isn’t a back story. But, what I can say is that people give me energy and serving them is what gets me up in the morning. I also love ideas, especially those that meaningfully change lives. It translates into my love for innovation and desire to continuously improve and to always be moving forward.

So, my story is that I get to do what I love. I really can’t tell the difference between work and play, because it’s all play to me. My career satisfies my need for intellectual rigor and allows me to continuously innovate and ideate. Further, it’s a means to impact lives. It provides our associates with careers that satisfy their calling and allows those we serve to turn their attention to the people and causes that are worthy of their lives. Frankly it’s all very satisfying and I am very blessed.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

It would have to be my parents. They loved unconditionally, gave undying support and imparted great wisdom to both me and my sister, Ann Hamilton — the visual artist. While we took different paths, our parents modeled a strong work ethic, encouraged critical thought and gave us an almost obsessive desire to always do our personal best. While we probably didn’t recognize it at the time, they flamed our creative juices, fed our entrepreneurial passions and gave us the confidence to explore ideas, if only to see where they would lead. All were wonderful gifts.

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?

If there is a back story, it’s how our dynamic investment process was born. As background, my father was the President of a small, but very successful packaging company that traded on the NASDAQ. Frankly, I probably received an MBA’s worth of business knowledge sitting at the family dinner table listening to him regale the day’s events. Among the lessons learned was an understanding of investment fundamentals.

Fast forward to one of the first professional education sessions I attended as a young financial professional. This occurred long before Hamilton Capital was even an idea. The discussion was about portfolio management and the recommended practice was to simply set a long-term asset allocation and then as price movements changed portfolio weightings, one simply rebalanced so the original mix of assets was restored. The objective was to maintain the same asset allocation all the time and somehow this would lead to success. Fundamental forces such as valuation and changes in the economic cycle that I learned from my father, were largely ignored.

To me, this made no sense. If an asset class was fundamentally overpriced, it was still included in the portfolio. The same thing was true for asset classes that were negatively impacted by the current economy. The rationale was that periods of negative performance would be eventually offset by periods of strong performance and it would all average out in the end.

I thought to myself, why not be more dynamic? Own more of an asset when it’s attractive, less when its prospects are limited and don’t own it at all if you are likely to lose money. And, when things change, adjust. Over the years, this idea was refined into a repeatable investment process that has been the foundation of every Hamilton Capital portfolio since the beginning. It’s difficult to do, but I believe the results speak for themselves.

Are you working on any exciting new projects now? How do you think that will help people?

We are working on a series of collective investment trusts for 401(k) plans. What makes these trusts unique is they will be professionally managed by Hamilton Capital using our signature dynamic investment process. Participants seem to prefer it and I believe it is where the industry is heading.

Traditionally, individual participants have directed the investment of their plan balances by selecting from a menu of mutual funds representing individual asset classes or a series of target date funds that take a passive approach to asset allocation. The results have been disastrous. Industry data suggests that individual investors tend to underperform financial markets by wide margins and their plan balances suffer as a result.

Our research suggests that one of the biggest reasons plan participants tend to underperform is they try to execute a dynamic investment process on their own. This is best done by experienced professionals because individuals tend to make the wrong decisions at the wrong times. And while many plans seek to educate participants not to do this, industry studies suggest that no amount of education will change their behavior. I feel participants are on to something and the retirement plan industry needs to catch up. Our hope is that plan sponsors will add these trusts to their investment menus and participant outcomes will improve in a meaningful way.

Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?

We certainly are living in unprecedented times. I refer to them as moments of truth. Personally, I have a deep faith and during times like this I cling to it. I focus on God and not on my circumstances. Often, I need to remind myself that He loves me without condition; He wants the best for me; He is in control and responsible for the outcome. And while things did not always turn out as I hope, looking back I found He was always faithful, and things worked out for my good.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long-term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing $500 every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?

First, I would try to help them understand the investment strategy they are following. Dollar cost averaging into the S&P 500 assumes the index will appreciate in the coming years and pays little attention to fundamental forces like the economy or the price you pay. This has worked well in the decade since the financial crisis, however, it probably would not have been successful in the prior decade when the S&P 500 had a negative total return.

Any investment needs to make sense from a fundamental perspective. In effect, you will own its future cash flows and you always want to own them at an attractive price. Using the S&P 500 as an example, you are buying the future profits of the biggest 500 companies in the United States. Every day, investors (the market) assign a price based on the collective outlook for future profits. Both can be wrong. And as an investor, you need to determine if the market price is attractive taking into account your personal view of the future profits of these companies. Then you need to decide whether to buy, hold or move on to the next opportunity based on your conclusion.

This is what Hamilton Capital does every day. It’s not about whether the price is trending up or down or whether things need to settle down. It is a discipline that we constantly apply — one that we believe has served our clients well over the years.

Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?

First, one needs to define what recovery means. Are we talking about how we live or are we talking about private sector profits, which are the fuel of stock prices? Relative to sustainable private sector, our work suggests that, without ongoing new stimulus packages from the federal government, it’s hard to project sustainable positive earnings growth in the medium term, and even flat earnings appear unlikely. Further, new stimulus means increasing our national debt and at some point, this may become a factor.

With that said, there will be future opportunities. However, they won’t necessarily be in sectors that will do well in the current environment. It could be that the most attractive opportunities will be in sectors and asset classes whose prices have been unfairly punished. Taking advantage of these outsized opportunities requires a disciplined process that constantly evaluates the forces that will drive future profits in the context of the current market price. This means both when the blood is in the water and when things feel stable.

Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?

Yes, there are opportunities in industry sectors and asset classes that we believe have been unfairly punished. Some came into focus in late March, others are still emerging. At this point, I hesitate to mention them because they need to be purchased in the context of the entire portfolio and things are very fluid so an attractive opportunity today could be less so tomorrow.

Are there alternative investments that you think more people should look more deeply at?

We believe that alternative investments will have a greater weighting in our portfolios in the future. However, they too should be evaluated based on today’s price and future cash flows to be received. Further, just like any other investment, alternatives should be compared to the projected returns available elsewhere. The goal is to always put the odds in our clients favor by seeking to find the best relative value.

One aside — since many alternative investments are less liquid, to be included in our portfolios they require a meaningfully greater projected return to compensate for this illiquidity.

If a person in their thirties and forties came to you today and said that they have $10,000 that they want to put away today for a long-term investment what would you advise them to do with it?

I would advise them to be very clear on what they are seeking to accomplish, whether you are investing $10 thousand or $10 million. To that end, the key to building and maintaining individual wealth is to compound returns. It isn’t an objective; it is the objective. And it doesn’t matter if you are in your thirties or your sixties, compounding returns is key.

The power of compounding is among the first lessons learned by young investment professionals. It’s so simple, it takes on an unsophisticated tone. After all, we learned about compound interest in elementary school. Many set the concept aside as being too basic and then added layers of needless complexity. Yet, wealth rarely exists without compounding. And while it seems simple, it takes a sophisticated process to regularly achieve it.

To effectively compound returns, you need to be very clear about your investment management objectives. Our portfolios have two simple goals. The first is to build high quality returns. The second is to shield capital from unacceptable risks and to protect it in adverse markets. In the latter case, the goal is to recover quickly so future returns again build on past returns. No investment is forever, so understanding what you want from an investment is key.

Ok, thank you! Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing, what would you say? Can you please give a story or an example for each?

  1. Investment process is everything. Great investment results are the outcome of a great investment process. Have a well thought out process and be diligent in its execution.
  2. I can’t emphasize enough the power of compounding returns.
  3. Don’t chase returns or trust market momentum. Just because an investment’s price recently went up doesn’t mean it is a good investment. The opposite is also the case.
  4. Ask this question every day about every investment position in your portfolio: “Would I buy this position today?” If the answer is no, then you should consider moving on.
  5. Be a great researcher and a humble analyst. Constantly ask: What don’t I know?

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

I go back to my faith and a verse in the Bible. It’s Ephesians 2:10. Let me paraphrase with my emphasis and embellishments. “You are God’s magnificent creation, His finest work, His magnum opus. He knew you before the beginning of time and He created you for the purpose of doing great and important works that only you were created to do.” Simply put, He wants you to be alive. He wants you to thrive. He wants to walk with you on this amazing adventure called life. Check Him out.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂

My passion is that people live extraordinary lives of great meaning. My hope is that people are confident in who they are, understand why they live and they align their actions with their purpose. This gives me great energy and I am working with an incredible team to develop programs so people can learn to be the best version of themselves and know who they really are. So far, it has been very well received. Hopefully it’s a movement that spreads.

Thank you for the interview. We wish you only continued success!

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