March 11, 2019
Recently I was asked to speak to an established Atlanta investment club about the market. The investment club sent me a copy of their portfolio, so I could review it prior to the talk. It was quite impressive. Solid returns, and household names populated their holdings, however, there was a clear concentration of risk. You see, the portfolio was exclusively Large Cap U.S. companies. As I thought about my program topic, I decided my focus would not be on what was in the portfolio, but rather what was not in the portfolio. Thus, my topic became a simple question: “Are You Looking at the Whole Picture?”
The Callan Periodic Table is a famous investment table that you may have seen in the past. It looks a bit like the scientific periodic table of elements. The entire field is covered in small square colored boxes; each column represents a year, and the boxes under each year rank the market returns produced in each major sector from best to worst. When viewed over a long period of time, one sees that these colored boxes dramatically change year to year. This table shows one core investment fact – what has worked in the past is not assured to work in the future. The worst performing asset last year could be the best performing asset this year. There is, in my opinion, no better illustration for the benefits of diversification than looking at and thinking about what the Callan Periodic Table shows.
As investors look at their options of where to invest on the Callan Periodic Table, we see boxes labeled with the traditional asset classes like “Cash” and “Fixed Income,” while other boxes are labeled “Large Cap U.S.” and “Emerging Markets.” On the surface it would appear the table captures all the places that an investor can deploy their capital. The traditional Callan Periodic Table does in fact capture the large “public” sectors of investing, but are there other options for investors? What about the vast world of opportunities in the private markets?
A growing number of Investors have opened their eyes to opportunities in the private markets. Here, investments in private real estate, like apartments, retail, or office space may be considered. What about the private debt market, where investors can lend money to companies or individuals that may not be able to borrow money from traditional sources? Lastly, there is the vast world of private equity, where growing companies are looking for investors at all levels of capital needs. Seed or angel investors help very young companies, while more established companies are looking to venture capital and buyout specialists to help them grow their businesses. There are many places that investors can and should put their capital for both income and growth. Your portfolio shouldn’t be just one small box on the Callan Periodic Table. Keep your investment eyes and mind open; the world is more than one box.