Hank Mulvihill doesn't adhere to a buy-and-hold philosophy, and that has been profitable for his clients and himself.
Hank Mulvihill says he made a smart career move at just the right time.
Fascinated with the stock market since his teens, Mulvihill joined Merrill Lynch in the mid-1980s. A few years later, he moved on to investment bank Alex. Brown & Sons, which was sold to Bankers Trust in 1997 and later folded into Deutsche Bank. None of those transactions affected Mulvihill, however, because he had already struck out on his own. In the mid-1990s, technology was changing the investment landscape. That's when he says his timing was perfect.
"At that time, the Internet was just becoming capable of providing what had previously been unobtainable services to an independent financial advisor," he says.
Not only were advisors able to leverage the new technology to develop financial plans and investment portfolios, but they also were able to put clients into the fast-rising Nasdaq stocks that led the late-1990s' market rally.
Many investors failed to sell in time to keep their tech-boom profits. Mulvihill, who does not favor a buy-and-hold philosophy, got out with gains. "I made a lot of money for my clients," he says. "I survived the 2001 and 2002 meltdown with profits in both years, and I am very, very proud of that."
Today, he runs Mulvihill Asset Management in Richardson, Texas, with $23 million in assets under management.
Know Your Client Base
Mulvihill says that after 24 years in the advisory business, he knows exactly who his ideal client is--because it's a group he's already working with. "It's the C-level executives and the entrepreneurs who have plenty of assets but don't have the time to do this themselves," he says. "They want to know that an advisor will not let them get completely crushed by not paying attention to their portfolios."
The firm also works with retirees and families, and it does generational planning. His practice has been mainly fee-only for the past decade and entirely fee-only since early 2010. In keeping with his view that an advisor should not lose sight of each client's objectives, Mulvihill prefers to do much of his own investment research. A junior associate assists him, but Mulvihill's methodology involves a good amount of hands-on research into individual stocks.
His philosophy boils down to this: Deliver total return and growth with reasonable risk. "I look for total return with investments that let me sleep well at night. That involves searching for the yield," he says.
There are many ways that can be accomplished, but Mulvihill says that it always boils down to working with an individual client or family to determine goals and risk tolerance. "It means listening to clients and their families, and hearing their concerns. As a group, advisors probably don't do enough of that," he says. "Clients tell me what they are comfortable with riskwise, and I make allocations based on that."
Off the Beaten Path
When seeking proper investment vehicles to achieve yield, Mulvihill doesn't automatically go for index funds. He will use individual stocks, bonds, and even options, in addition to ETFs.
One somewhat-unconventional instrument he turns to is straight bonds, rather than bond funds. "They've worked well over the last year and a half because we've had the most remarkable situation with rates that were very low, and getting lower still," he says.
Among the debt investments he uses are Texas school district bonds, which are tax-free and bring cash flow along with relatively high yield. When it comes to stocks, Mulvihill uses Morningstar.com's Premium Screener to uncover companies with top fundamental metrics. One of his preferred yardsticks is free cash flow, which he likes to see increasing year-over-year. He also tracks sales and earnings growth, low debt/equity ratios, and dividend increases. Liquidity is an important factor, so he screens for companies or REITs trading at least 1 million shares per day.
But once a stock is purchased, that doesn't mean it's destined to become another family member. Selling to keep gains stuck with Mulvihill after his success in the early-2000s' bear market. As the indexes topped in March 2000, he began exiting some of the tech positions that had been so rewarding for his clients. "It took us about six weeks or so to unwind the client portfolios," he says. "I rode the big tech bubble up, and my clients kept about 80% of what they made. That, I think, is a big deal. Because most investors rode it up and rode it right back down again."
Though he considers himself primarily a stock investor, Mulvihill does have some funds that he also likes, mainly ETFs and ETNs. He singles out the JPMorgan Alerian MLP Index ETN
"It has a very nice dividend payout, a very good daily volume, and that particular ETF is suitable for IRA accounts, where the master limited partnerships won't fit," he says. Oil-and-gas pipeline MLPs have become popular with many advisors looking for favorable tax treatment and high dividend yields for their clients. Mulvihill likes those attributes but believes using the ETN to achieve those objectives is preferable to buying individual stocks, in this case.
"I believe that the oil-and-gas pipelines will continue to do extremely well and provide very nice stable cash flows. But the trouble with using those names in IRAs is that they have unrelated business income, and that's a problem at tax time. It's a real hassle. So, I don't put them into IRA accounts," he says.
Mulvihill came away from the early-2000s' bear market with more awareness of macroeconomic issues and their effects on yield.
To enhance his clients' and his own understanding of events and trends that could affect returns, he started a seminar series he dubbed "Fed Friday." He'd observed that investors and the media stopped to listen to the Federal Reserve's interest-rate announcement and the language in the accompanying news release.
These days, interest is heightened with Fed chief Ben Bernanke's postmeeting news conferences, but even before those started, Mulvihill used the central bank's statements as a starting point for his seminar series.
The event, which is held in Dallas three or four times a year, has attracted Fed economists, Texas elected officials, fellow advisors, and investors. Mulvihill emphasizes that despite the name, he doesn't avoid presentations that are critical of the Fed.
Fed Friday has given Mulvihill perspective on macroeconomic factors, and in the next few years, he sees cash flow gaining importance for investors--and tax collectors.
"This isn't going to abate for a long time," he says. "For all of us--individual investors, along with advisors and our clients, it raises the stakes. We have to be more innovative in our solutions and how we address the problems we're facing."