Forward-Looking Process to Help Achieve Above-Average Growth
You have been warned: Past performance does not guarantee future results.
That’s not a problem, says Rafael de Vengoechea, Senior Vice President and Senior Portfolio Management Director for Harbor Island Group of Morgan Stanley. “We’re not looking backwards. We’re focused on the financial opportunities of the future.”
His practice helps clients invest for retirement by building their portfolios with stocks whose outlook going forward is promising and whose history is . . . well, history. “We manage multiple portfolios with the same idea in mind – that all stocks have everything to do with the future and nothing to do with the past,” de Vengoechea says.
Data-Driven Stock Selection
Harbor Island Group applies an “earnings revision strategy,” ranking analysts on the accuracy of their forward-looking data and using their evaluations in building and managing clients’ portfolios. The goal is to help clients become long-term investors with a “sell discipline.”
But what is a “sell discipline”? People often focus on the “buy” side of the investment and worry about market drops, notes de Vengoechea. “However, knowing when to sell can represent about 95 percent of your success. By telling clients it’s not time to sell, we help drive long-term performance. We don’t focus on the price of the stock but rather the analysts’ revision data.”
Reducing Risk, Keeping Performers
Harbor Island Group tries to reduce risk by holding about 20-30 positions in a portfolio and equally weighing each position. The group monitors the revision data on the positions to find potential performers with above-average growth. “When a performer is found, people ask us how we were able to identify it,” de Vengoechea says. “Again, it’s not the price, it’s what changes the price over the long run – the forward-looking earnings changes. As long as the stock has upward earnings revisions and upward earnings, we continue to hold that position.”
Portfolios go through a maturity process, he says, and end up having stocks in certain accounts for a long time.
Analysts follow major sectors – de Vengoechea identifies consumer discretion, energy, health care, industrials, technology and a handful of others.
“If you have a 20-stock portfolio, there are going to be three or four
positions in that portfolio that really drive the performance over time,”
says de Vengoechea. “And our process is finding those performers and not
selling them too soon. By doing that, we seek to reduce risk and we let our potential performers run for the future.”
800 Newport Center Drive, Suite 500 | Newport Beach, CA 92660
949-717-5461 | morganstanleyfa.com/harborislandgroup
Rafael de Vengoechea is a Financial Advisor with the Wealth Management division of Morgan Stanley in Newport Beach, Calif. The views expressed herein are those of the author and may not necessarily reflect the view of Morgan Stanley Smith Barney LLC, Member SIPC (www.sipc.org). This material contains forward-looking statements and there can be no guarantees they will come to pass. Morgan Stanley Financial Advisor has engaged EMI Network to feature this promotion in Forbes magazine. Rafael may only transact business in states where he is registered or excluded or exempted from registration (www.morganstanleyfa.com/harborislandgroup). Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Rafael is not registered or excluded or exempt from registration. The strategies and/or investments referenced may not be suitable for all investors. CRC1019970 09/14