When “Protect & Preserve” becomes “Preserve to Survive”

CoreStates’ Investment Management Process

The foundation of CoreStates’ investment management process is broad diversification – among the multitude of financial and real assets from domestic and foreign issuers, each of which may be owned on a long or a short basis, and managed with traditional or alternative investment strategies.

But, broad diversification is just the beginning. We follow that with effective portfolio construction – setting target allocations among the many asset classes and investment styles that, based their history and reasonable expectations for the future, should temper investment risk and thereby protect our clients’ current lifestyles.

After the target allocations are established, we implement them with prudent asset selection – seeking stocks, bonds, other financial and “hard” assets, as well as managed accounts, that accurately represent their asset class or style and that appear to have a high probability of performing well over the long-term. The primary goal here is to earn returns that will at least maintain purchasing power in the years ahead, the ultimate goal being to preserve our clients’ legacies.

To succeed with this approach requires discipline, patience, and a long-term view – attributes that don’t come easily, but that can be attained by most investors, especially with the ongoing guidance of a professional financial advisor. Unlike the typical investment program, success with the CoreStates approach does not depend upon predicting the future – a capability no one can do with consistency whether they are an investor, an advisor, or a market pundit. Market timing is not part of the CoreStates investment management process. We do not expect to evade market declines or significantly enhance our clients’ long-term returns by making short-term moves among asset classes based on economic or market forecasts – ours or anyone else’s. It simply can’t be done, and we refuse to claim otherwise just to attract wishful clients.

Contingency Planning

CoreStates’ investment management process reflects our belief – strongly supported by history – that diversified investments in sound, growing economies provide long-term returns that handily exceed inflation. There may come a time, however, when we begin to question this belief. We may wonder if our long-term goal to protect-and-preserve might warrant more of a preserve-to-survive approach. Near-term risks may appear so great that our clients’ long-term investment success could be permanently jeopardized.

Such perceptions would probably arise from what is today a totally unknown source. Or, it might be just a more extreme instance of something we’ve seen before like . . . An imminent natural disaster, perhaps a tidal wave or a large meteor approaching Earth, An approaching man-made disaster such as a terrorist act that severely impairs critical infrastructure, or nuclear war, A broad-based inflationary bubble that threatens to dwarf those we’ve seen in narrow sectors of the economy when excessive consumer and investor optimism is fed by overly generous lenders, or A developing deflationary collapse that might be ignited by untimely fiscal and monetary restraint and fueled by excessive consumer and investor fears.

If the CoreStates Investment Committee* believes such a situation is developing, we know what we will do. Contingency plans are in place to implement a process of liquidations, hedging, and other techniques that we expect will at least moderate the declines in value, and that should allow us to position our clients’ portfolios to participate in the eventual cyclical recovery.

Much as we would like to, we don’t expect to be able to foresee and counter all serious threats that may arise in the years ahead. But, nor do we intend to blindly proceed with “business as usual” in the face of potentially devastating threats to our clients’ lifestyles and legacies. We are here to protect and preserve, and will do all we can to preserve to survive should it ever appear necessary.

* The CoreStates Investment Committee meets weekly (more often when deemed necessary) for the purpose of reviewing recent investment activities and status of accounts, appraising economic and market dynamics, and establishing investment strategies and tactics for the week ahead.