In this edition of the 5,5,5 we cover the concept of indexing, the recent reclassification update in the US stock market, and how to navigate the coverage that your insurance policies offer. Take a look!
1. Indexing – A Way to Pay More for What’s Already Expensive:
Over time, investors lose out by investing in traditional market capitalization (market cap, for short, equals the total number of shares outstanding times the share price), weighted indices. Equity market indices buy stocks as their price and valuation increases and sell stocks as their price and valuation decreases. These stocks are usually the “great” companies of their day but there are many “great” investments beyond the index. Investors want to maximize returns by buying low and selling high. While easier said than done, it is more logical than the reality of market cap indexing delivers. Active management avoids this attribute of market cap indexing by looking to buy “great” companies that are also great investments, in other words, companies that are on their way to $1 trillion in revenue, not already there.
2. The Recent Sector Reclassification in the U.S. Stock Market:
On Friday September 21th, something occurred that hasn’t happened since 1999. And no, it’s not some sort of astrological phenomenon. It’s something more exciting, the S&P Dow Jones Indices and MSCI made changes to the Global Industry Classification Standard (GICS®)! What does this mean? Some high-level changes include a newly named sector, ‘communication-services’, which will combine companies from “old” telecom (think Verizon) and “new” technology (think Facebook). Twenty-three companies will be changing sectors classification, which account for a total of $2.7 trillion in market capitalization value. This shift is a broader reflection of the way that the economy is evolving – evidenced by the difficulty of finding an accurate way to classify these companies. Is Facebook a technology company or a communication company? Maybe it’s both. But on Friday the 21th, it officially became a “communication-services” company.
3. The Transference of Risk:
The “transference of risk” sounds like the name of a novel, but it is simply the definition of insurance. Insurance provides the opportunity to decide how much loss we are personally comfortable absorbing and the cost of loss we are unwilling to accept. Historically, you either replaced the loss or took the loss. Modern capitalism gave birth to a business model that allows insurance companies to profit by making the bet that if enough money is aggregated from the many (in policyholder premiums), they will collect more than they pay out to the few (in covered losses).
From life, to health, to property - there is insurance for just about everything. Sometimes the options can be overwhelming. How much coverage do you really need? What type of coverage should you prioritize? Insurance laws, insurance needs and insurance products are constantly changing. One of many included services that we offer is assisting clients in evaluating the insurance coverage they have vs. what they truly need. A great example is ensuring that an existing umbrella policy is adequate to cover ancillary assets or business entities, and that nothing was missed in the underwriting process. We also see many instances where clients are paying for coverage that they don’t need, or their deductibles are lower than they need to be - which drives up premiums.
We do not replace the role of an insurance agent, but our intimate knowledge of a client’s entire financial picture puts us in a uniquely unbiased position to help identify what coverage suits the client’s situation best. We often work with client’s existing agents to design an optimal strategy. We also frequently refer clients to independent agents that we know and trust. We are not compensated in any way from these referrals; we just want our clients to be in good hands and have appropriate coverage.
If you would like for us to review your insurance policies, please don’t hesitate to reach out to your Wealth Manager. We would love to help.
4. Celebrating New Hires at True North:
Blake Kinney joined us as Business Operations Analyst in June. He has spent his last four years at Riveron Consulting as a Finance Manager and previously worked with PricewaterhouseCoopers LLP as an Experienced Associate. He holds his BBA in Accounting from Auburn and an MSA from SMU.
Claire Daigle joined us as an Office Coordinator/Receptionist on September 17. Claire worked as a Museum Collections and Exhibits Intern at the George W. Bush Presidential Library and Museum and as an Office Assistant at the SMU, Division of Dance. She graduated with a BA in History and Minor in Dance Performance from SMU.
Bethany Carla joined us as Executive Assistant on September 24. She spent her last few years providing administrative support to the COO and CDO at Gehan Homes. Prior to this role, she spent 10 years at Medhost in progressive administrative roles.
5. Fulfilling Employee Lives Through Volunteering:
True North Advisors core purpose is “Fulfilling Lives”. It brings us joy to see the lives of our employees fulfilled by giving back to the communities that hold meaning to them.
Recently, Brian Heider, Portfolio Manager at True North Advisors, spent time at Casa Hogar Elim (CHE) Orphanage, located in Nuevo Laredo, Mexico, with 20 others from his church. The orphanage, established in 1986 by Guadalupe Carmona (Mama Lupita), is home to 80+ children, ranging from infants to 24 years of age, whose parents cannot or will not care for them. CHE is run by the older children, so Brian spends most of his time there cooking and cleaning for a few days to free up the kids to just be kids. The rest of the time is filled playing soccer, reading, coloring, teaching painting classes or doing face painting, giving swim lessons, and just loving on these precious children. Brian spoke about one special little boy, Yahir, who remembers Brian now after a few trips and always runs up with a big hug when he sees Brian get out of the van, excited about the activities he will get to share with him. Brian has learned quickly though that when you pick up a toddler and play helicopter, other children will follow fast. He was surrounded by little ones saying “otra vez, otra vez”, again, again!! It was quite the workout. Not a lot of men or father figures visit the orphanage, so it helps show the children what the role of a loving man looks like.
“The children provide a great reminder of how much joy can come out of so little. It helps to regain perspective on what is most important and what truly matters. Brian goes on to say that, visiting the orphanage helps remind me to not worry about the little things, as so much of what we think about in our day to day is materially not important. It’s truly humbling when you see others that have so little but are able to give so much love. Brian says he gets much more by visiting them than he feels he is able to give, and this fulfills him.” For more info on CHE: https://www.giftofdignity.org/