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VOL. 126 | NO. 40 | Monday, February 28, 2011

Waddell: 2011 is Time for Financial Optimism

By Andy Meek

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It wouldn’t have seemed out of place if David Waddell had reminded the audience at his company’s yearly “State of the Union” presentation that the only thing they have to fear is fear itself.

After walking through an investment review of 2010 and an outlook for 2011, Waddell, the chief executive officer of financial planning firm Waddell & Associates, hit upon a theme that might appear to stand in contrast to gloomier news like soaring commodity prices, tension over domestic entitlements and unrest in the Middle East.

His theme could be summed up in three words: America is rising.

“I watched (the president’s) State of the Union speech with rapt attention, and was really struck with the Sputnik moment idea,” Waddell told The Daily News. “This idea that somehow the U.S. has entered this economic space race, and we’re behind. That China has got it figured out, and the U.S. is really diminishing.

“That seems to be pervasive as a sort of groupthink out there. But I don’t think that’s the case at all. The biggest threat to U.S. supremacy is not China, in my judgment. The biggest threat to U.S. supremacy really is the U.S. entitlement system.”

Waddell acknowledged to his audience on Thursday in the University of Memphis FedEx Institute of Technology that China’s ascension has created a bout of American insecurity.

At the same time, he noted that emerging markets over the next 10 years will be responsible for most of the economic growth on the planet. And U.S. corporations stand to profit handsomely from that.

It’s a sign that, in his words, there’s “a whole lot more demand arriving on the world stage.”

And he thinks investors ought to see China not as competition, but as customers.

During the question-and-answer portion of the presentation, someone asked Waddell why he sees China as a customer of the U.S. He responded that it’s one of the most fertile markets for almost anything at the moment – and that someone even approached him about going to China and starting a wealth management business there.

Speaking of his own firm, Waddell kicked off the event with big news about Waddell & Associates: it’s now 100 percent employee-owned.

When he arrived at the firm, it had three shareholders. It’s also long viewed the nurturing of long-term advisers as an important core principle.

The average length of time Waddell’s core client adviser has been with the firm is 14 years.

To keep that going, Waddell has introduced an employee stock ownership plan.

“At W&A, we’re a family,” Waddell said.

He added that the firm’s leadership and advisers collectively have several million dollars of their own money invested alongside the firm’s clients.

The firm met its investment expectations in 2010 and beat core benchmarks like the S&P – a revelation that drew applause.

“I wait all year for that,” Waddell responded.

His firm’s focus, however, is not purely a constant stream of high returns. It’s “to outperform the market marginally over time.”

Household net worth is coming back, Waddell said. Corporations cut costs quickly when the recession hit – and now have stockpiles with which they can resume paying dividends, hire workers, open new plants, make capital investments and acquire other companies.

GM within the last few days reported its best yearly earnings since 1999. All of which, to Waddell, is reason to be hopeful.

“I want you to be optimistic in 2011,” was the parting remark Waddell left with his audience.

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