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Taking emotion out of the equation

by Jan 9, 2014Advisor Interviews

Taking emotion out of the equation

by Jan 9, 2014Advisor Interviews

Thomas Campbell • Plano, TX
Transamerica Financial Advisors

Thomas Campbell shares his views on active management.

It is no coincidence that Thomas Campbell started his business career as an engineer. His education in computer science and engineering experience with Texas Instruments is reflected in the rigorous quantitative analysis and the highly disciplined approach he brings to his successful career as an investment advisor representative for Transamerica Financial Advisors, Inc., Transamerica Financial Group Division (TFG).

So successful, in fact, that Campbell and his group have been recognized several times as among the top three teams within Transamerica Financial Advisors, TFG division, for assets placed under management, topping the $1 billion mark.

Not that Campbell is only about the numbers, as he also exudes a truly humanistic side to his relationships with his many clients, professing, “I got into this business for the educational aspects, both for my own family and for educating clients on how they can best plan for their future.”

Campbell is a devoted advocate of active management as it applies to clients’ overall investment objectives, their blended strategies, and most definitively in the equity side of their portfolios. He sees no reason why the most sophisticated risk-managed strategies must be the sole province of major institutions or the wealthiest individual investors, saying, “The average American deserves the tools to get where they want to go in their financial planning and end objectives.”

As an investment advisor representative of TFG, Campbell has pored over the analyses of individual investor behavior and has also seen firsthand the unhappy results, unfortunately, too many times. Self-directed individual investors almost universally underperform the market, Campbell says, as many go through an endless, poorly timed cycle of “chasing performance and then getting burned through capitulation at just the wrong time.” Nowhere was this seen more than in the bear market of 2008-2009, and Campbell can say that the vast majority of his client base saw a positive return for 2008, even with the S&P 500 off 37%.

How does he achieve his results for clients? Campbell begins each process with new clients in a rigorous fact-finding assessment of their current situations and future goals, in the process helping with an education, needed by many, of enhancing understanding of sound financial fundamentals. And this can cover all areas of one’s financial plan, from basic life insurance needs to sophisticated, long-term retirement planning.

But Campbell’s real passion lies in delving deeply into the equity side of his clients’ portfolios, where he recognizes so many investors have sat idly by and passively barely survived (hopefully) the ups and downs of 15-plus years of challenging equity markets.

Many go through an endless, poorly timed cycle of “chasing performance and then getting burned through capitulation at just the wrong time.”

Campbell has three core principles when it comes to helping clients manage their investment portfolios:

  1. “No absolute predictions. I realize I may not be the smartest guy in the room, but even the smartest cannot claim 100% accuracy on market direction and timing. We will all be wrong at times.
  2. “Markets essentially do two things: They go up, and they go down. You should employ strategies that can make money in both environments.
  3. “We need to keep it simple for clients, and by that I mean strategies they can easily understand; can be duplicated over time; and offer, within the limits we all recognize, the best predictive power possible that we can find.”

And Campbell believes that “we all will be wrong at times” is more than a pat phrase, developing a full understanding with his clients of their risk tolerance as it pertains to “laydowns (periods marked by lack of returns) and drawdowns (for those inevitable periods of some losses).”

When these are objectively quantified, “emotion and ego can be put aside” for the most part, and clients can more freely allow their strategies to perform as designed, without constant second-guessing. And this is what Campbell describes as a “paradigm shift” for most clients, whom he helps realize that the health of their portfolios “does not have to depend only on a rising equity market.”

Here is where it truly gets interesting, and where Campbell’s quantitative skills come to the forefront. He was instrumental in helping to develop a highly sophisticated strategy that exclusively trades the NASDAQ 100 and can be long, leveraged long, short, or in cash, depending on proprietary indicators. While not necessarily for everyone, Campbell likes to say, “We have built an America’s Cup caliber boat, employ the best crew in the world, and are on a beautiful ocean. When the wind blows, and we don’t care which way it blows, we think we can do some terrific sailing.”

But this is hardly the only strategy Campbell employs, and a cornerstone of his active management approach is offering a very wide potential combination of diversified strategies. His group has the ability to reach out to any number of third-party money managers in constructing the right individualized approach for each client.

In line with this overall risk-managed active approach, Campbell will generally use several different noncorrelated strategies, in several different asset classes. While not every strategy “will fire on all cylinders” at the same time, that is “exactly the point,” Campbell says. It would not be unusual for Campbell to have clients in the intermediate trend-based long/short NASDAQ strategy previously mentioned, a very short-term tactical equity strategy, and a long/short bond fund, wrapped around some more conventional core strategies. All are driven by strict rules-based methodologies (and algorithms), “taking perfectly normal but often misguided human market bias out of the equation.”

Campbell believes, “Most people do not need access to dozens of strategies, but it is nice to know they are there if needed for any specific situation.” And Campbell adds, “We offer our clients a truly open architecture, where choices are many in terms of strategies, products, money managers, and fiduciary relationships.”

The end result? Clients who are comfortable with both their long-term objectives and well-designed strategies, and the understanding that building wealth and greater security is “not just dependent upon one strategy’s occasional good year.” Campbell and his client base are targeting consistently positive net performance over time of several blended strategies, with actively managed adjustments along the way.

Campbell realizes it is important to “know what you can control and what you cannot, and plan accordingly.” So when the calm waters of investing turn treacherous, as they inevitably do, Campbell has already brought to his clients what all experienced “sailors” know is so important: the combination of proper resources, extensive preparation, teamwork, and the discipline all so necessary to face any given situation.

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Disclosure: Thomas Campbell is a registered representative and an investment advisor representative with Transamerica Financial Advisors, Inc., in Plano, Texas. Securities and investment advisory services offered through Transamerica Financial Advisors, Inc. (TFA), Transamerica Financial Group Division, member FINRA, SIPC, and registered investment advisor. Non-securities products and services are not offered through TFA.

Photography by Barb Alderson

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