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When is Enough, Enough?
by Bruce Primeau

I have been a financial planner and for several years
now but for the life of me, sometimes I cannot understand
the power of greed. Greed, you say? Yes, greed!

I come from a CPA background so I have pretty much always
been good with numbers. Depreciation, taxes, profit
margins and net income were all vigorously ingrained in my
brain by my instructors. But one thing my years of
education and training never completely explained to me
was the power of greed.

I will share with you a few examples of what I mean by
this power that I have come across in my years of
experience. The first, and most memorable experience comes
from a client I had at a prior firm with a net worth of
approximately $8 million and investable assets of $5
million. This client and his wife were around 45 years of
age and were small business owners. They had recently sold
their business for a tidy sum of $6 million. The husband,
an avid golfer, looked forward to retiring at a young age
and possibly getting serious about his golf game. He
invested their money somewhat conservatively in a 50%
equity / 50% fixed income allocation, with the exception
of a $1.2 million equity position in the company that
purchased his business. The client called this his "play
money". This company he felt could grow considerably in
the coming years and he wanted to participate fully in
that growth. They had purchased a new home in Florida and
had their sights on a place in Arizona. Everything was
going their way.

Now, being their financial advisor, I felt obligated to
remind this client that he was risking more than 20% of
his total portfolio in one stock. I felt funny doing so
since this couple had sold their business for quite a
large sum of money. Surely they were financially savvy and
knew very well what they were doing. And yet I shared one
piece of investment advice with them that comes from what
I call "Basic Investments 101". The basic premise is: "If
you have accumulated enough to live on for the rest of
your life, than why do you want or need to risk it?"

Less than 18 months, and two additional investments into
this company later, he couldn't sell his stock for enough
to pay for a decent round of golf at a local course. His
$1.2 million position had shrunk to a little over $40.
That's right, 40 bucks. His equity portfolio also lost
significant ground during this period and the last time I
talked to him he was discussing how he was going to have
to go back to work in some capacity to continue living the
lifestyle he and his family had become accustomed to over
the past couple of years.

Another story comes from a couple that had accumulated
quite a large block of stock from the husband's employer
and they too had just retired. The stock made up over 50%
of this couple's entire net worth and a diversification
plan was clearly in order. As their financial advisor I
had performed my duty of explaining the risk associated
with holding such a large block of one stock and the
client clearly seemed to understand this risk. We had
recommended several methods to protect the stock on the
downside but the client did not heed our advice. They had
intimate knowledge of this company and it would be one
that would surely weather any storm the stock market could
dish up.

The couple had decided that they were going to begin
selling this stock at a set price and wanted us to begin
the process by placing a limit order to sell a block of
the stock at $45. At the time the stock was hovering
between $43 and $44 but the stock, according to the
client, would clearly hit $45 in the near future and the
diversification process would be well underway. As you can
imagine the stock didn't hit $45 but was pummeled shortly
thereafter by an earnings warning and the couple was
stunned. We finally did begin selling some of the stock at
a much lower price (in the mid 20's as I remember) and the
couple, to this day, cannot believe their eyes. By not
selling at $43 when they had the chance they cost
themselves millions of dollars.

My final story comes from a couple in their mid 40s, using
an "ultra aggressive growth" manager we have in town. This
manager was nationally recognized for the performance
numbers he put up and had investors begging for him to
reopen his fund to new investors. This particular couple
had given this manager $1 million a few years ago and this
manager had grown this money to almost $5 million. WOW!
What a run this manager had. It was obscene!

This $5 million now represented over 75% of this client's
investment portfolio and I was quick to point out the
unbelievable risk this client was subjecting themselves
to. They had clearly accumulated enough to retire
whenever they wanted and live the life they had always
dreamed of. Their kid's college educations could now be
fully funded and they could rest assured that this manager
would take care of all of their financial needs.

The last couple of years have taken quite a toll on this
manager and couple. Over a short period of time, this
client rode their investment with this manager down to $2
million but had finally set a goal of taking some of this
manager's portfolio "off the table" once the portfolio hit
$3 million again. When I left my former firm their account
was under $700,000.

So I ask you the same question, when is enough, enough? If
you have managed to accumulated more money than you and
your children and your children's children will ever need,
than why subject yourself to unnecessary risk?

One of the first conversations my present firm has with
clients like these goes something like this. If you know
you have enough to live comfortably for the rest of your
life, and you know that you don't have to subject yourself
to the risks inherent in the stock market, then you have
only one question to answer. Why am I subjecting myself to
unnecessary risk? If you can't come up with a GREAT
reason, then you know you shouldn't be doing it.

Don't get me wrong, there are a number of great reasons to
invest aggressively. I firmly believe that there are two
phases in life. The growth (accumulation) phase and the
protect (diversification) phase. You accumulate and invest
in a somewhat aggressive manner early in life to provide
the returns necessary to achieve the diversification
phase. The diversification phase is achieved when you have
accumulated enough assets to live out the rest of your
days. You no longer need to "hit homeruns". You merely
need some singles and doubles to sustain your assets. And
yet, time and time again, I see couples stacking the
lineup with big-name homerun hitters despite the fact that
they are retired and are clearly way ahead in the game.

My point is a simple one. A good asset allocation and
diversification plan is all one really needs when they
have achieved their accumulation goals. Slow and steady
growth is the key. No big hitters, no homeruns.

I have learned quickly in the investment world that greed
is a powerful thing and I have seen it at work all too
many times in my years as a CPA and financial planner. I
like and respect my clients and always look out for their
best interest. As financial advisors, we must be sure to
explain the unnecessary risks that we see our clients
taking on a regular basis. In my opinion, this is the most
valuable service we can provide for them. Lets face it,
the last thing we want to see is one of them spending
their retirement years working the drive through at the
local burger palace.

Bruce Primeau, CPA, PFS
Director of Wealth Management Services
Wade Financial Group
5500 Wayzata Boulevard, Suite 900
Minneapolis, MN 55447
(763) 797-9577

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